exv10w40






Exhibit 10.40




August 25, 2008




Elisa Karlson



Dear Elisa:



Congratulations! I am pleased to have you join the team at Valeant Pharmaceuticals International.



This letter outlines the details of your employment and your Valeant assignment, which was
contingent upon your successful completion of a pre-employment drug screen and background
investigation.





	•	 	Title: Chief Administrative Officer; you will report to the Chief Executive
Officer.
	 
	•	 	Base Salary: $25,000 per month ($300,000 annualized).
	 
	•	 	Starting date: April 7, 2008.
	 
	•	 	Relocation Benefits: You will be eligible for relocation benefits in accordance
with the generally applicable terms and conditions of the relocation policy available to
senior executives of the Company; provided that, at a minimum, for a period of six months
following your commencement date, you will be reimbursed for your costs of commuting between
the Company’s offices and your home in New Jersey.
	 
	•	 	Sign-On Bonus: You have received, or will receive, a sign-on bonus of $500,000 on
or before May 7, 2008; provided, however, if you voluntarily terminate your employment prior
to April 7, 2009 (or you are terminated for Cause within such period), you will be required to
repay to the Company a pro rata portion of such bonus determined by multiplying $500,000 times
the quotient obtained by dividing (a) the difference obtained by subtracting the number of
days employed from [365]; by (b) [365]. [# of days to be confirmed with Mike}
	 
	•	 	Salary Adjustments: You will be eligible for participation in our Merit Increase
Program, based on performance, for the period beginning April 1, 2009. This policy is subject
to change as approved by the Compensation Committee of the Valeant Board of Directors.
	 
	•	 	Annual Incentive: You will be eligible to participate in Valeant’s management
bonus plan beginning in the 2008 calendar year. Your target bonus will be 60%, with the
potential of 120% of your base pay. This plan, and therefore your participation, is subject
to change at the discretion of the Board of Directors. Bonuses are payable at the time the
other management bonuses are paid. To be eligible for any bonus payment, you must be employed
by the Company on the day in which the applicable bonus is paid to other members of Valeant
management. Notwithstanding the foregoing, you shall be guaranteed to participate in the 2008
bonus program at the target level ($180,000), prorated for your period of employment for
2008, if you remain with the Company until the date that 2008





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	 	 	bonuses are paid in 2009. Such bonus guarantee is a minimum and does not limit the Company from
paying additional bonus under the program.
	 
	•	 	Equity Awards: As indicated in the employment terms provided to by you by the
Company’s Chief Executive Officer, subject to the approval of the Compensation Committee of
the Company’s Board of Directors, you will receive the following equity:






	 	 	 	Stock Options — options to purchase 125,000 shares of Common Stock of Valeant
Pharmaceuticals International (the “Options”). The Options will be priced at the fair
market value at the close of business on the date of approval by the Compensation Committee.
The Options will vest over a four-year period from the grant date of the Options (25% per
year on the anniversary of the grant date) and shall have a term of ten (10) years. If,
your employment is terminated by the Company without Cause or by you for Good Reason,
either in contemplation of a Change in Control or at any time within twelve (12) months
following a Change in Control, then any Option that is not cancelled in connection with the
Change in Control in exchange for cash payment will vest on the termination date and shall
remain exercisable for one year following the termination date (but in no event beyond the
10-year term of the Option). If your employment is terminated by the Company for Disability
or by reason of your death, any Option outstanding shall vest in full and remain exercisable
following the termination date (but in no event beyond the 10-year term of the Option).
	 
	 	•	 	Performance Restricted Share Units. You will also receive 49,847
performance-based restricted stock units (the “Performance Share Units”) under the
Company’s 2006 equity incentive plan (the “2006 Plan”), which shall vest as follows,
(provided, in all events that you are continually employed by the Company through and
including February 1, 2011):






	 	1.	 	If at February 1, 2011 (the “First Measurement Date), the Adjusted Share Price
(as defined below) equals the Single Vesting Share Price (as defined below), you shall
vest in 49,847 Performance Share Units.
	 
	 	2.	 	If at the First Measurement Date the Adjusted Share Price equals (the Double
Vesting Share Price (as defined below), you shall vest in 99,694 Performance Share
Units.
	 
	 	3.	 	If at the First Measurement Date the Adjusted Share Price equalsthe Triple
Vesting Share Price (as defined below), you shall vest in 149,541 Performance Share
Units.
	 
	 	4.	 	Performance Share Units that could have been earned under any of subclauses 1,
2, or 3 above that are not earned on the First Measurement Date may be earned on
February 1, 2012 (the “Second Measurement Date”), subject to your continued employment
through that date, based upon the Adjusted Share Price on such Second Measurement Date.
	 
	 	5.	 	If the Adjusted Share Price on a measurement date is between the Single Vesting
Share Price and the Double Vesting Share Price or is between the Double Vesting Share
Price and
the Triple Vesting Share Price, you shall vest in, and the Company shall deliver, a
number Performance Share Units that is the mathematical interpolation between the number
of shares which would vest at defined ends of the spectrum.
	 
	 	6.	 	The Company shall distribute to you a number of shares of its common stock
equal to the number of Performance Shares that become vested as soon as practicable
(but in any





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	 	 	 	event no later than 45 days) following the vesting date of such Performance Shares. You
shall not be permitted to sell, assign, transfer, or otherwise dispose of more than fifty
percent (50%) of the Net Shares (as defined below) acquired upon settlement of the
Performance Share Units until the expiration of the two-year period following receipt,
or, if sooner, until a Change in Control or until you experience a termination of
employment. For purposes of this letter, Net Shares shall mean the net number of shares
acquired by you upon settlement of the Performance Share Units after subtracting any such
shares withheld by the Company in payment of withholding obligations applicable to such
settlement.
	 
	 	7.	 	In the event of the occurrence of a Change in Control or termination of your
employment by death or Disability, the performance measures applicable to the
Performance Share Units will be applied as though the date of the Change in Control, or
employment termination date, as applicable, were the end of the measurement period,
with the number of units calculated in a manner consistent with the vesting schedule
described above (e.g., in the event of a Change in Control occurs or your employment is
terminated by death or Disability prior to the First Measurement Date, 100% will vest
at the date of such termination if the Adjusted Share Price is the Single Vesting Share
Price; 200% will vest if the Adjusted Share Price is the Double Vesting Share Price;
and 300% will vest if the Adjusted Share Price is the Triple Vesting Share Price; and
if the Adjusted Share Price on such measurement date is between the Single Vesting
Share Price and the Double Vesting Share Price or is between the Double Vesting Share
Price and the Triple Vesting Share Price, you shall vest in, and the Company shall
deliver, a number of Performance Share Units that is the mathematical interpolation
between the number of shares which would vest at defined ends of the spectrum).






	 	 	“Adjusted Share Price” means the sum of (i) the average prices of a share for the twenty trading
days prior the applicable measurement date (the “Per Share Price”), and (ii) the value that
would be derived from the number of shares (including fractions thereof) that would have been
purchased had an amount equal to each dividend paid on a share of common stock after February 1,
2008 and on or prior to the applicable measurement date been deemed invested on the dividend
payment date, based on the closing price of the common stock on such dividend payment date.
	 
	 	 	“Single Vesting Share Price,” “Double Vesting Share Price,” and “Triple Vesting Share Price”
mean the Adjusted Share Prices equal to a compound annual share price appreciation (the “Annual
Compound TSR”) of 15%, 30% and 45%, respectively, as measured between the specified share price
of $12.27 on February 1, 2008 (which was the Per Share Price as measured on the effective date
of the Performance RSU Award granted to the Company’s Chief Executive Officer pursuant to his
employment agreement) and the applicable measurement date. For example, Annual Compound TSRs of
15%, 30% and 45% equal Adjusted Share Prices of (a) $18.66, $26.96 and $37.41, respectively, on
the First Measurement Date and (b) $21.46, $35.04 and $52.24, respectively, on the Second
Measurement Date.



Grant Notices and Grant Agreements shall be prepared consistent with the terms set forth above
and providing such other terms and conditions as are in the Company’s standard such agreements.
	 
	•	 	Share Purchase Commitment: You also agree to purchase at least $150,000 worth of
shares of the Company’s common stock on or before April 7, 2009, or such later date as
determined by the Company (the “Purchased Shares”). You shall not be permitted to sell any of
the Purchased Shares until the earlier of one year after the Final Purchase Date (as defined
below) and your date of termination of employment for any reason. As long as you remain
employed by the Company, you





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	 	 	shall retain ownership of at least (i) seventy-five percent (75%) of the Purchased Shares until
April 7, 2010, (ii) fifty percent (50%) of the Purchase Shares until April 7, 2011, and (iii)
twenty-five percent (25%) of the Purchased Shares until April 1, 2012 (the holding requirements
in this and the immediately preceding sentence shall be referred to as the “Purchase
Obligations”). Notwithstanding the foregoing, the Purchase Obligations shall be waived upon the
occurrence of a Change of Control. The “Final Purchase Date” shall mean the date on which you
have purchased shares that, together with other shares purchased by you on or after April 7,
2008, have an aggregate purchase price of $150,000.
	 
	 	 	Matching Grants for Share Purchases: The Company shall make matching grants with
respect to the Purchased Shares and any additional shares of the Company’s common stock you
purchase (up to an aggregate purchased amount of $300,000, inclusive of the Purchased Shares) on
or before April 7, 2009. Such matching grants shall be credited to you as soon as practicable
after the end of any month in which you purchase Company shares, in a number of restricted share
units equal to the number of shares purchased in such month (the “Matching Share Units”). The
Matching Share Units shall vest and be settled in shares on the following schedule: Twenty-five
percent (25%) of the Matching Share Units shall vest and be settled on the first anniversary of
the Final Purchase Date and an additional 25% of the Matching Share Units shall vest and be
settled on each of April 7, 2010, April 7, 2011 and April 7, 2012, provided you are employed on
the relevant vesting date and you have not violated the Purchase Obligations prior to such
vesting date. If your employment is terminated by the Company without Cause or by you for Good
Reason, either in contemplation of a Change in Control or at any time within twelve (12) months
following a Change in Control, or if your employment is terminated by the Company at any time
for Disability or by reason of your death, then, your Matching Share Units shall immediately
vest and be settled in shares as soon as practicable (but not more than 60 days) thereafter.
	 
	•	 	Until the expiration of the two-year period following the date on which any portion of the
Matching Share Units are settled, you shall not be permitted to sell, assign, transfer, or
otherwise dispose of more than fifty percent (50%) of the net number of shares acquired by you
upon such settlement of such portion of the Matching Share Units after subtracting any such
shares withheld by the Company in payment of withholding obligations applicable to such
settlement acquired upon settlement of the Matching Share Units. This restriction shall cease
to apply upon a Change in Control or your earlier termination of employment.
	 
	•	 	Good Reason. You may terminate your employment for Good Reason (as defined below) by
delivering to the Company a Notice of Termination (as defined below) not less than thirty (30)
days prior to the termination of your employment for Good Reason. The Company shall have the
option of terminating your duties and responsibilities prior to the expiration of such
thirty-day notice period, subject to the payment by the Company of the benefits provided in
this letter, as may be applicable. For purposes of this letter, Good Reason shall mean the
occurrence of any of the events or conditions described in clauses (i) through (iii)
immediately below which are not cured by the
Company (if susceptible to cure by the Company) within thirty (30) days after the Company has
received written notice from you within ninety (90) days of the initial existence of the event
or condition constituting Good Reason specifying the particular events or conditions which
constitute Good Reason and the specific cure requested by you.





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August 25, 2008

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(i) Diminution of Responsibility. (A) any material reduction in your duties or
responsibilities as in effect immediately prior thereto, or (B) removal of you from the
position of Chief Administrative Officer, except in connection with the termination of your
employment for Disability, Cause, as a result of your death or by you other than for Good
Reason;




(ii) Compensation Reduction. Any material reduction in your base salary or target bonus
opportunity; or




(iii) Company Breach. Any other material breach by the Company of any material provision of
this letter.




	•	 	Change in Control. For purposes of this letter, a “Change in Control” shall mean
any of the following events:






(i) the acquisition (other than from the Company) by any person (as such term is defined in
Section 13(c) or 14(d) of the Securities Exchange Act of 1934, as amended (the “1934 Act”))
of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of
thirty percent (30%) or more of the combined voting power of the Company’s then outstanding
voting securities;




(ii) the individuals who, as of the date hereof, are members of the Board (the “Incumbent
Board”), cease for any reason to constitute at least a majority of the Board, unless the
election, or nomination for election by the Company’s stockholders, of any new director was
approved by a vote of at least a majority of the Incumbent Board, and such new director
shall, for purposes of this Agreement, be considered as a member of the Incumbent Board; or




(iii) the closing of:




	 	(1)	 	a merger or consolidation involving the Company if the
stockholders of the Company, immediately before such merger or consolidation, do
not, as a result of such merger or consolidation, own, directly or indirectly,
more than fifty percent (50%) of the combined voting power of the then
outstanding voting securities of the corporation resulting from such merger or
consolidation in substantially the same proportion as their ownership of the
combined voting power of the voting securities of the Company outstanding
immediately before such merger or consolidation; or
	 
	 	(2)	 	a complete liquidation or dissolution of the Company or an
agreement for the sale or other disposition of all or substantially all of the
assets of the Company.






Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely
because thirty percent (30%) or more of the combined voting power of the Company’s then
outstanding securities is acquired by (i) a trustee or other fiduciary holding securities
under one or more employee benefit plans maintained by the Company or any of its
subsidiaries or (ii) any corporation which, immediately prior to such acquisition, is owned
directly or indirectly by the stockholders of the



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	 	 	 	Company in the same proportion as their ownership of stock in the Company immediately prior
to such acquisition.
	 
	 	 	 	Upon the occurrence of a Change in Control, at the election of the Company, either (i) the
unvested Options and Matching Share Units shall vest and all Options and Matching Share
Units shall be cancelled in exchange for a cash payment based in the case of any merger
transaction on the price received by shareholders in the transaction constituting the Change
in Control or, in the case of any other event that constitutes a Change in Control, the
closing price of a Share on the date such Change in Control occurs (minus, in the case of
Options, the applicable exercise price per share) or (ii) all Options and Matching Share
Units shall be converted into options or units, as applicable, in respect of the common
stock of the acquiring entity (in a merger or otherwise) on the basis of the relative values
of such stock and the Shares at the time of the Change in Control, reflecting and continuing
the same vesting schedule in place immediately prior to the Change in Control; provided that
subclause (ii) shall only be applicable if the common stock of the acquiring entity is
publicly traded on an established securities market on the date on which such Change in
Control is effected.
	 
	 	•	 	Disability. The Company may terminate your employment, on written notice to you after
having established your Disability and while you remain Disabled, subject to the payment by
the Company to you of the applicable benefits provided pursuant to this letter. For
purposes of this letter, “Disability” shall mean your inability to substantially perform
your duties and responsibilities hereunder by reason of any physical or mental incapacity
for two or more periods of ninety (90) consecutive days each in any three hundred and sixty
(360) day period, as determined by a physician with no history of prior dealings with the
Company or you, as reasonably agreed upon by the Company and you. You shall be entitled to
the compensation and benefits provided for under this letter for any period prior to your
termination by reason of Disability during which you are unable to work due to a physical
or mental infirmity in accordance with the Company’s policies for similarly-situated
executives.
	 
	 	•	 	Cause. The Company may terminate your employment for “Cause”, subject to the payment by
the Company to you of the applicable benefits provided in this letter. “Cause” shall mean,
for purposes of this letter: (1) conviction of any felony (other than one related to a
vehicular offense) or other criminal act involving fraud; (2) willful misconduct that
results in a material economic detriment to the Company; (3) material violation of Company
policies and directives, which is not cured after written notice and an opportunity for
cure, (4) continued refusal by you to perform your duties after written notice identifying
the deficiencies and an opportunity for cure; and (5) a material violation by you of any
material covenants to the Company. No action or inaction shall be deemed willful if not
demonstrably willful and if taken or not taken by you in good faith and with the
understanding that such action or inaction was not adverse to the best interests of the
Company. Reference in this paragraph to the Company shall also include direct and indirect
subsidiaries of the Company, and materiality shall be measured based on the action or
inaction and the impact upon the Company taken as a whole. The Company may suspend, with
pay, you
upon your indictment for the commission of a felony as described under clause (A) above.
Such suspension may remain effective until such time as the indictment is either dismissed
or a verdict of not guilty has been entered.





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	•	 	Employee and Executive Benefits: You will be eligible to participate in the
employee benefit plans and programs generally made available to employees (on the terms and
conditions applicable generally to all employees) and the Valeant’s Executive Benefit Program:






	 	1)	 	Executive medical program
	 
	 	2)	 	Executive medical reimbursement program up to $10,000 per year
	 
	 	3)	 	Executive perquisites allowance of $25,000 (subject to applicable taxation) annually to
be used as you see fit for car, enhanced life insurance, financial planning, etc.
	 
	 	4)	 	Executive Vacation Program
	 
	 	5)	 	Executive Annual Physical Program






	•	 	Reimbursement of Certain Expenses: The Company shall fully reimburse the fees of
your counsel and financial advisor incurred in connection with the development and
implementation of the terms of your employment.
	 
	•	 	At-Will Employment. Your employment with Valeant is “at will”. This means that
you or Valeant have the option to terminate your employment at any time, with or without
advance notice, and with or without cause. Valeant also may change your position, title, pay,
benefits, and other terms and conditions of your employment (except for the at will nature of
your employment and the terms of the Mediation and Arbitration Agreement) at any time, for any
reason, with or without notice. This offer of employment does not constitute an express or
implied agreement of continuing or long term employment. The at will nature of your
employment can be altered only by a written agreement specifying the altered status of
your employment. Such written agreement must be signed by both you and Mr. Pearson.
	 
	•	 	Severance Benefits. Notwithstanding the immediately preceding bullet paragraph, if
your employment is terminated by the Company without Cause or by you for Good Reason, the
Company shall have the following obligations:






	 	•	 	The Company will pay you the sum of an amount equal to your annual salary as of the
date of your termination, plus an amount equal to your annual target bonus as of the
date of your termination, provided that, if your termination occurs either in
contemplation of a Change in Control or at any time within twelve (12) months following
a Change in Control, the Company shall pay you an amount which is twice the sum
otherwise determined under this bullet;
	 
	 	•	 	The Company will pay you any accrued but unpaid salary or vacation pay and any
deferred compensation. In addition, the Company will pay you any bonus earned but
unpaid in respect of any fiscal year preceding the termination date, within 60 days
following the termination date, plus any pro-rata bonus for the year of termination
based on a target-level bonus.
	 
	 	•	 	The Company will provide you with continued coverage under any health, medical,
dental or vision program or policy in which you were eligible to participate at the
time of your employment termination for 12 months following such termination on terms
no less favorable
to you and your dependents (including with respect to payment for the costs thereof) than
those in effect immediately prior to such termination;
	 
	 	•	 	The performance measures applicable to the Performance Share Units will be applied
as though the termination date were the end of the measurement period, with the number
of units calculated in a manner consistent with the vesting schedule described above
(e.g., in the event of your termination prior to the First Measurement Date, 100% will
vest at the date





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Ms. Elisa Karlson

August 25, 2008

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	 	 	 	of such termination if the Adjusted Share Price is the Single Vesting Share Price; 200%
will vest if the Adjusted Share Price is the Double Vesting Share Price; and 300% will
vest if the Adjusted Share Price is the Triple Vesting Share Price; and if the Adjusted
Share Price on such measurement date is between the Single Vesting Share Price and the
Double Vesting Share Price or is between the Double Vesting Share Price and the Triple
Vesting Share Price, you shall vest in, and the Company shall deliver, a number of
Performance Share Units that is the mathematical interpolation between the number of
shares which would vest at defined ends of the spectrum); provided, however, that in the
event you are entitled to payment under this bullet point, only a pro rata portion of
such calculated units will vest upon your termination (based on the number of completed
months elapsed from the date of grant to the date of termination divided by 36 months).
The Company shall deliver shares in respect of such vested Performance Share Units, if
any, as soon as practicable (but not later than sixty (60) days) following your
termination date, and all other Performance Share Units will be forfeited.
	 
	 	•	 	The Company shall provide outplacement services through one or more outside firms of
your choosing up to an aggregate of $20,000, which services shall extend until the
earlier of (i) 12 months following the termination of your employment or (ii) the date
that you secure full time employment.
	 
	 	•	 	You shall have three months following the termination date to exercise vested
Options (but in no event beyond the expiration of the 10-year Option term). Any
unvested portion of the Option, any unvested Performance Share Units and any unvested
Matching Share Units shall be forfeited.




Notwithstanding anything herein to the contrary, the Company shall have no obligation to pay or
provide any of the severance benefits set forth in this letter unless you execute and deliver,
within 60 days of the date of your termination, and do not revoke, a general release in form
satisfactory to the Company. It is understood that you will not engage in any activities that
constitute a conflict of interest with the interests of Valeant.



Section 409A. If any payments or benefits due to you hereunder would cause the application of an
accelerated or additional tax under Section 409A of the Internal Revenue Code of 1986, as amended
(“Section 409A”), such payments or benefits shall be restructured in a manner which does not cause
such an accelerated or additional tax. Without limiting the foregoing and notwithstanding anything
contained herein to the contrary, to the extent required in order to avoid accelerated taxation
and/or tax penalties under Section 409A amounts that would otherwise be payable and benefits that
would otherwise be provided pursuant to this letter during the six-month period immediately
following your separation from service shall instead be paid on the first business day after the
date that is six months following your termination date (or death, if earlier), with interest from
the date such amounts would otherwise have been paid at the short-term applicable federal rate,
compounded semi-annually, as determined under Section 1274 of the Internal Revenue Code of 1986,
as amended, for the month in
which payment would have been made but for the delay in payment required to avoid the imposition of
an additional rate of tax on you under Section 409A.



It is understood that you are required to read, review, agree, sign and return the following
documents included with this letter: 1) the Conflict of Interest Policy and Agreement, 2) the
Workers’ Compensation Fraudulent Claims notification, 3) the Employee Agreement concerning
inventions, discoveries, and improvements, and 4) the Mediation and Arbitration Agreement, and 5)
the Trading in Company Stock




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Interoffice Memorandum. Additionally, the Immigration and Reform Act 1986 requires each new
employee to provide proof of eligibility to work in the United States.



Valeant Policy will govern any other matter not specifically covered by this letter.



The terms of this letter constitute the entire agreement between Valeant and you with respect to
the subject matter hereof, superseding all prior agreements and negotiations.



We are pleased to have you join us. As confirmation of acceptance of this employment offer, please
sign this letter indicating your agreement and acceptance of the terms and conditions of
employment. In addition, please mail the original signed offer letter in the envelope
provided. A duplicate copy of this offer letter is included for your records.



Again, welcome to Valeant!






Sincerely,





/s/ J. Michael Pearson





J. Michael Pearson

Chairman, Chief Executive Officer





AGREED AND ACCEPTED:





			
	 	 	 
	_/s/ Elisa Karlson                    
	 	Date: ___September 10, 2009___
	Elisa Karlson	 	 






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