Exhibit 10.34


 


IN THE MATTER OF THE SECURITIES ACT,


R.S.O. 1990, c. S.5, as amended


 


-and-


 


IN THE MATTER OF BIOVAIL CORPORATION, EUGENE N. MELNYK,


BRIAN H. CROMBIE, JOHN R. MISZUK and KENNETH G. HOWLING


 


SETTLEMENT AGREEMENT BETWEEN


STAFF OF THE ONTARIO SECURITIES COMMISSION AND


BIOVAIL CORPORATION


 


I.              INTRODUCTION


 


1.             By Notice of Hearing and
related Statement of Allegations dated March 24, 2008 (the “Notice of
Hearing”), the Ontario Securities Commission (the “Commission”) announced that
it proposed to hold a hearing to consider whether, pursuant to s. 127 and s.
127.1(1) and (2) of the Securities
Act, R.S.O. 1990, c. S.5, as amended (the “Act”), it is in the public interest to make certain orders
against Biovail Corporation (“Biovail”), Eugene N. Melnyk (“Melnyk”), Brian H.
Crombie (“Crombie”), John R. Miszuk (“Miszuk”) and Kenneth G. Howling (“Howling”)
as described in the Notice of Hearing.


 


II.            JOINT SETTLEMENT RECOMMENDATION


 


2.             Staff of the Commission (“Staff”)
agree to recommend settlement of the proceeding initiated in respect of Biovail
by the Notice of Hearing in accordance with the terms and conditions set out
below.  Biovail agrees to the settlement
on the basis of the facts agreed to in Part IV and consents to the making
of an Order in the form attached as Schedule “A”.


 


III.           ACKNOWLEDGEMENT


 


3.                                       Biovail
admits the facts set out in Part IV of this Settlement Agreement solely
for the purposes of this Settlement Agreement. This Settlement Agreement and
the


 

















 


facts
and admissions set out herein are without prejudice to Biovail in any other
proceeding including, without limitation, any civil, administrative,
quasi-criminal or criminal actions or proceedings that may be brought by any
person or agency, whether or not this Settlement Agreement is approved by the
Commission.  On March 24, 2008
Biovail announced that it had resolved a proceeding issued on that day by the
United States Securities and Exchange Commission involving similar issues to
those raised in this proceeding.


 


4.             Without
limiting the generality of the foregoing, Staff and Biovail expressly agree
that this Settlement Agreement and the facts and admissions contained in it are
made without prejudice to any other respondent to this proceeding and are not
intended to, and do not, bind any other respondent to this proceeding, whether
in this proceeding or in any other proceeding. 
In particular, Staff and Biovail acknowledge that Staff intends to
pursue all of the allegations raised in the Notice of Hearing against all of
the remaining respondents.


 


IV.           FACTS


 


5.             Biovail
is a reporting issuer in the province of Ontario.  The common shares of Biovail are listed and
posted for trading on the Toronto Stock Exchange and the New York Stock
Exchange.


 


6.             Biovail
is Canada’s largest publicly traded pharmaceutical company. Since the
mid-1990s, Biovail’s strategy has been to apply advanced drug-delivery
technologies to improve the clinical effectiveness of medicines. The Company’s
business strategy involves commercializing these products both directly (as is
the case in Canada) and through strategic partners. Its main therapeutic areas
of focus have historically been central nervous system disorders, pain
management and cardiovascular disease.


 


7.             Melnyk
was the Chairman of the Board of Directors of Biovail until his resignation
from the Board effective June 30, 2007. 
From December 2001 to October 2004 Melnyk was Chairman and
Chief Executive Officer of Biovail. 
Melnyk resigned as 


 


2

















 


CEO
of Biovail on October 8, 2004. 
Melnyk first became a Director of Biovail in March of 1994.  Melnyk became Executive Chairman of the Board
of Biovail in November of 2004 and relinquished that title on June 27,
2006.  Melnyk is no longer employed by
Biovail and is no longer a director of Biovail.


 


8.             Crombie was the Chief Financial Officer of Biovail
from May 2000 to August 2004. 
He became the Senior Vice-President, Strategic Development in August 2004.  Crombie is no longer employed by Biovail.


 


9.             Miszuk was the Vice-President, Controller and
Assistant Secretary of Biovail until 2008. 
He had held the positions of Vice-President and Controller since November of
1997, and the position of Assistant Secretary since June of 2000.  Miszuk is no longer employed by Biovail


 


10.           Howling was a Senior Vice-President and held the
position of Chief Financial Officer of Biovail in 2006 and 2007.  Howling was Biovail’s Vice-President, Finance
and Corporate Affairs from October 2004 to 2006 and Vice-President,
Finance from May 2000 to October 2004.  During the Material Time (as defined below),
Howling also served as Biovail’s head of investor relations.


 


Overview


 


11.           The conduct at issue relates to Biovail’s annual
financial statements for the fiscal year ended December 31, 2001, interim
financial statements for Q3 of 2001, Q1, Q2 and Q3 of 2002, and Q1, Q2 and Q3
of 2003, as well as conduct concerning Biovail’s disclosure during that
time.  These time periods are referred to
individually as the “Relevant Fiscal Periods” and collectively as the “Material
Time”.


 


12.           As a reporting issuer in Ontario, Biovail has
continuous disclosure obligations pursuant to Part XVIII of the Securities
Act, R.S.O. 1990, c. S-5 as amended (the “Act”).  Sections 77 and 78 of the Act and related
provisions in the Regulations direct that all financial statements filed with
the Commission must be prepared in accordance with generally accepted
accounting principles (“GAAP”) recommended 


 


3

















 


in the Handbook of the Canadian Institute of Chartered Accountants.  Moreover, all financial statements and other
material filed with the Commission must not be misleading or untrue or omit a
fact which would render them misleading.


 


13.           Biovail filed with the Commission during the
Material Time financial statements that, while represented to be prepared in
accordance with Canadian GAAP, were, to the extent described herein, not
prepared in accordance with Canadian GAAP and therefore such filings were
contrary to sections 77 and 78 of the Act. 
Further, Biovail’s representations that the financial statements had
been prepared in accordance with Canadian GAAP were, to the extent described
below, materially inaccurate, contrary to Ontario securities law and the public
interest.


 


14.           The matters that are the subject of this Settlement
Agreement fall into five general categories:


 


(a)                                  Biovail’s
failure to disclose in the documents filed with the Commission which are listed
in Schedule “B” hereto (Biovail’s “Public Disclosure”) the establishment of and its arrangements
with Pharmaceutical Technologies Corporation (“PTC”);


 


(b)                                 Biovail’s improper recognition in its interim financial statements for Q2 of 2003 of revenue relating
to a sale of Wellbutrin XL tablets;


 


(c)                                  Biovail’s failure to correct and disclose, on a timely basis, a
material error in its 2003 financial statements;


 


(d)                                 Biovail’s dissemination of incorrect statements in
certain press releases in October 2003 and March 2004, in an analyst conference call held on October 3, 2003, and in investor
meetings held in October 2003 relating to a truck accident; and


 


(e)                                  Biovail’s provision of materially inaccurate information to OSC Staff
during a continuous disclosure review conducted in 2003 and 2004 (the “Continuous
Disclosure Review”).


 


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Biovail’s
Failure to Disclose the Establishment of and its Arrangements with PTC


 


(a)           The
Establishment and Activities of PTC


 


15.           In 2001, Biovail sponsored the creation of a
research and development vehicle, eventually incorporated as PTC.  PTC was created to engage in the application
of Biovail’s drug delivery technologies to the formulation and development of a
portfolio of six products.


 


16.           On June 28, 2001, an individual equity
investor acquired 100 percent of the common shares of PTC for $U.S. 1
million.  The equity investor acted as a
consultant to Biovail from November 1999 to November 2001.


 


17.           On June 29, 2001, the equity investor entered
into a Share Option Agreement pursuant to which the equity investor granted to
Biovail an irrevocable option, exercisable at any time until December 31,
2006 and at Biovail’s sole discretion, to purchase all, but not less than all,
of the outstanding common shares of PTC, at a price that increased over time.


 


18.           On June 29, 2001, PTC entered into a Product
Development and Royalty Agreement (“PDRA”) with Biovail.  Under the PDRA, PTC contracted to develop six
products owned by Biovail Laboratories Inc. (“BLI”), a Biovail subsidiary, in
exchange for the receipt of royalties upon the commercialization and sale of
these products.  PTC was also granted a
license to use certain technology owned by BLI to complete the development of
the products.


 


19.           During the period June 30, 2001 to December 31,
2002, PTC engaged Biovail and third party developers to carry out research and
development activities for the products in question.


 


20.           On December 31, 2002, Biovail acquired 100
percent of the outstanding shares of PTC for $22,600,000, including costs of
acquisition.  Biovail represents that,
through the acquisition of PTC, Biovail extinguished any future milestone or 


 


5

















 


royalty obligations that Biovail may have had to PTC resulting from the
approval and successful commercialization of any of the products.


 


(b)           Biovail’s
Failure to Disclose its Arrangements with PTC


 


21.           During the period from June 2001 to December 2002
an issuer’s continuous disclosure obligations included the filing of an Annual
Information Form (“AIF”) and an annual and interim Management’s Discussion &
Analysis (“MD&A”) accompanying its financial statements.  OSC Rule 51-501- “AIF &
MD&A” set out the filing and delivery requirements of AIF and MD&A, as
well as the form and content of these documents.  The AIF was to be prepared in accordance with
Form 44-101F1 and the MD&A was to be prepared in accordance with Form 44-101F2.


 


22.           Pursuant to these disclosure requirements, Biovail
was required to disclose, among other things, any event occurring during the
reporting period that was reasonably expected to have a material effect on
Biovail’s business, financial condition or results of operations.  Biovail filed AIFs and annual and interim
MD&As during the Material Time.


 


23.           On November 5, 2001, Biovail filed a Short Form Base
Shelf Prospectus with the Canadian provincial securities commissions in
relation to the potential sale of up to U.S. $1.5 billion in any combination of
common shares, debt securities and warrants. 
Subsequently, on November 14, 2001 and March 26, 2002, Biovail
filed two Prospectus Supplements for offerings of 12.5 million common shares
for U.S. $587.5 million and U.S. $400 million of senior subordinated notes,
respectively (the “Prospectus Supplements”). 
All of these filings are referred to collectively as the “Prospectuses”.  Biovail was required to provide full, true
and plain disclosure of material facts in the Prospectuses.


 


24.           The Prospectus Supplement filed on November 14,
2001 incorporated by reference, among other things, the Q3 interim financial
statements for the 2001 fiscal year.  The
Prospectus Supplement filed on March 26, 2002 also incorporated by
reference, among other things, its press release dated February 21, 2002
containing 


 


6

















 


condensed consolidated balance sheets and income statements as at December 31,
2001.


 


25.           The transfer of the development of the products and
the related development expenses from Biovail to PTC was an event that was
reasonably expected to have a material effect on Biovail’s business, financial
condition or results of operations and was a material fact.


 


26.           The acquisition of PTC by Biovail was disclosed in
a Form 20-F filed on May 20, 2003, which contained the annual and Q4
interim financial statements for its 2002 fiscal year.  This was several months after Biovail had
purchased PTC.


 


27.           Biovail failed to disclose in its Public Disclosure
during the Material Time the existence of PTC and the nature and substance of
Biovail’s arrangements with PTC.  In so
doing, Biovail violated the requirements of Ontario securities law and acted in
a manner contrary to the public interest.


 


Misleading
Information Provided to OSC Staff during Continuous Disclosure Review


 


28.           During the Continuous Disclosure Review, Staff
requested information from Biovail in relation to several issues, including the
arrangements between Biovail and PTC.


 


29.           A letter to Staff from Biovail dated January 28,
2003 contained the following statement:  “[n]one
of Biovail, nor any of its affiliates, directors or officers were involved in
the formation of [PTC]”.  This statement
was materially inaccurate.  By making
this statement, Biovail violated Ontario securities law and engaged in conduct
contrary to the public interest.


 


Improper
Revenue Recognition in Q2 2003 Financial Statements — the Wellbutrin XL Bill
and Hold Arrangement


 


30.           On July 29, 2003, Biovail released its
financial results for the quarter ending June 30, 2003 (the “Q2 2003 Press
Release”).  These results were further disseminated
in a conference call and webcast held on July 29, 2003 (the “Q2 2003
Analyst 


 


7

















 


Call”).  Biovail subsequently
filed financial statements for this quarter with the Commission on August 29,
2003 (the “Q2 2003 Financial Statements”).


 


31.           The Q2 2003 Press Release, Q2 2003 Analyst Call and
the Q2 2003 Financial Statements included in Biovail’s revenue for the quarter
approximately U.S. $8 million relating to a sale of Wellbutrin XL (“WXL”)
tablets to GlaxoSmithKline PLC (“GSK”) that was purportedly carried out on a “bill-and-hold”
basis.  Inclusion of this amount in
revenue for the quarter increased Biovail’s operating income by approximately
U.S. $4.4 million.  The transaction did
not meet all of the revenue recognition requirements under Canadian GAAP for a
bill and hold arrangement.  Accordingly,
the inclusion of the revenue in Q2 2003 was improper.


 


(a)           The
Wellbutrin XL Agreement


 


32.           On October 26, 2001, Biovail (through its
subsidiary BLI) entered into a Development, License and Co-Promotion Agreement
with GSK.  This agreement was modified by
a Memorandum of Understanding effective January 1, 2003 (together, these
two documents form the “Agreement”). 
Under the Agreement, Biovail agreed to manufacture and supply all of GSK’s
requirements for tablets of WXL.


 


33.           Under the Agreement, Biovail was to supply GSK with
WXL tablets at two price points: “trade” prices for tablets which were to be
sold to the public, and “sample” prices for tablets which were to be
distributed free through physicians in order to promote the tablets in the
marketplace.


 


34.           Under the Agreement, the prices were fixed for
sample tablets.  Prices for trade tablets
were based upon a tiered percentage of GSK’s net sales of WXL, and were higher
than the sample tablet prices.  The
Agreement contemplated that Biovail would package the trade tablets at its own
expense.


 


35.           At the time of entering into the Agreement, WXL had
not been approved by the U.S. Food and Drug Administration, and thus could not
be sold to the public.


 


8

















 


36.           The FDA approved WXL on August 28, 2003.  This included approving the form of packaging
and labelling for WXL.


 


(b)           GSK’s
Purchase Orders


 


37.           The Agreement did not impose an obligation on
Biovail to manufacture WXL prior to FDA approval.  The Agreement did not make specific
provision, whether through milestone payments or otherwise, for the expenses of
pre-launch manufacture of WXL.  It also
did not specifically contemplate a price at which pills manufactured prior to
launch would be sold.


 


38.           During 2002, Biovail and GSK representatives met to
discuss the pre-launch manufacture of WXL.


 


39.           In April 2003, GSK sent out an initial order
for 30,400,000 WXL tablets, for which it proposed to pay the sample prices
provided in the Agreement (the “April Purchase Order”).  These tablets were requested for June delivery.


 


40.           Throughout April, May and June 2003, GSK
and Biovail representatives continued to discuss the pre-launch manufacture of
WXL.  The parties agreed that in addition
to the April Purchase Order, GSK would place an order for WXL for which it
would pay a fixed price.


 


41.           On June 20, 2003, GSK sent Biovail a purchase
order requesting 27,090,000 WXL tablets at a fixed price per tablet and a $1.00
per bottle packaging fee (the “June Purchase Order”).  The June Purchase Order replaced the April Purchase
Order and therefore also contained an order for 30,400,000 WXL tablets at
sample prices.


 


(c)           The
Recognition of Revenue


 


42.           On June 30, 2003, Biovail invoiced GSK for a
total of 18,020,244 WXL tablets at fixed trade prices for a total amount of
$8,073,051.24 (the “June Invoice”). 
Biovail recorded this latter figure as revenue for its fiscal quarter
ending June 30, 2003.  The inclusion
of this revenue increased Biovail’s operating income for the quarter by
approximately $4.4 million, which was a material amount.


 


9

















 


(d)           The
Purported Bill-And-Hold Arrangement


 


43.           The June Invoice identified by lot number the
specific WXL tablets that it encompassed (the “Specified Tablets”).  Biovail represents that, subsequent to June 30,
2003, it maintained the Specified Tablets in a segregated area of its warehouse
in Steinbach, Manitoba, and in a designated “site” in its inventory
system.  Biovail did not, however, supply
all of the Specified Tablets to GSK in accordance with the terms reflected on
the June Purchase Order and the June Invoice.


 


44.           On August 1, 2003 and August 22, 2003,
Biovail shipped some of the Specified Tablets to GSK as sample product.  By August 31, 2003 Biovail had replaced
most of those Specified Tablets with new WXL tablets (the “Pill Switch”).


 


45.           Biovail ultimately cancelled the June Invoice
and re-issued a different invoice, with different lot numbers, reflecting the
sale of the new WXL tablets at the fixed prices agreed in the June Purchase
Order.  Credit notes were issued to
prevent double-billing.


 


46.           In July 2003, during the review of Biovail’s
Q2 2003 financial statements by Biovail’s auditors, Biovail was questioned
about the sale of the Specified Tablets at fixed trade prices.  Biovail did not, at that time, inform its
auditors that the sale was conducted on a “bill and hold” basis or of the Pill
Switch.


 


47.           In early 2004, as part of their 2003 year-end
audit, Biovail’s auditors questioned the WXL revenue recorded on June 30.  In response, Biovail represented that the WXL
arrangement had been conducted on a bill-and-hold basis.  Biovail represented that it had reached an
agreement with GSK prior to June 30, 2003 that the Specified Tablets would
be initially segregated within its warehouse and later shipped to GSK after FDA
approval was received.  The auditors
required Biovail to obtain confirmation of certain particulars of the bill and
hold arrangement that had not been memorialized in any contemporaneous
documentation.  Biovail asked for and
received confirmation from GSK in the form required by the auditor.


 


10














 


(e)           Premature
Recognition of Revenue


 


48.           Canadian GAAP provides that in most cases, revenue
is not recognized until the  passing of
possession of goods.  In other words, in
most cases, revenue should not be recognized until delivery has occurred.  Delivery generally is not considered to have
occurred unless the product has been delivered to the customer’s place of
business or to another site specified by the customer.


 


49.           “Bill and hold” transactions, in which delivery of
the goods does not immediately take place, provide an exception to general
revenue recognition principles.  Such
transactions, however, must meet very specific accounting requirements.


 


50.           Biovail represents that it recognized the revenue
with respect to the sale of the Specified Tablets on June 30, 2003 on a “bill
and hold” basis.


 


51.           However, Biovail now acknowledges that the revenue
recognition requirements, under Canadian GAAP, for a “bill and hold”
arrangement were not met with respect to the Specified Tablets.


 


52.           Accordingly Biovail should not have recognized
revenue in its Q2 2003 Financial Statements from the sale of WXL pills pursuant
to the purported “bill and hold” arrangement.   
Biovail therefore violated Ontario securities law and engaged in conduct
contrary to the public interest.


 


53.           In its Q2 2003 Press Release and Q2 2003 Analyst
Call, Biovail disseminated the financial results which incorporated this
improperly recognized revenue.  Doing so
violated Ontario securities law and was contrary to the public interest.


 


Biovail’s
Failure to Correct and Disclose on a Timely Basis a Material Financial
Statement Error — The Foreign Exchange Error


 


54.           On April 29, 2003 Biovail released its
financial results for the quarter ending March 31, 2003 (the “Q1 2003
Press Release”).  As set out above,
Biovail released its financial results for Q2 2003 on July 29, 2003.  On October 30, 2003 Biovail released its
financial results for the quarter ending September 30, 2003 (the “Q3 


 


11

















 


2003 Press Release”).  Biovail
subsequently filed financial statements for the first quarter on May 30,
2003 (the “Q1 2003 Financial Statements” ), for the second quarter on August 29,
2003 (as defined above, the “Q2 2003 Financial Statements”) and for the third
quarter on November 28, 2003 (the “Q3 2003 Financial Statements”).


 


55.           Biovail failed to account properly for an
obligation denominated in Canadian dollars in its Q1 2003 Financial Statements,
its Q2 2003 Financial Statements and its Q3 2003 Financial Statements.  Although questions regarding the proper
recording of the Canadian dollar obligation had been raised by Biovail
accounting personnel in early July 2003, prior to the release of its Q2
2003 financial results and the filing of the Q2 2003 Financial Statements,
Biovail did not disclose the error until it issued on March 3, 2004 its
earnings release for the fourth quarter 2003 and the full fiscal year ended December 31,
2003 (the “March 3, 2004 Press Release”).


 


56.           In December of 2002, Biovail, through its
subsidiary BLI, acquired the rights to certain drugs.  In so doing, Biovail assumed an obligation
denominated in Canadian dollars.  Since
Biovail reported its results in U.S. dollars, it was required to account for
this obligation in its financial statements in U.S. dollars.  Biovail properly accounted for this
obligation in December 2002 when it converted the obligation from Canadian
dollars to U.S. dollars using the then current U.S.$/CAN$ exchange rate (“FX
Rate”).


 


57.           Canadian GAAP requires that any outstanding balance
of a foreign currency denominated obligation that is a monetary item be
revalued using the FX Rate current at each balance sheet date.  At March 31, 2003, however, Biovail,
continued to use the FX Rate from December 2002 (the “Error”).  Biovail also continued to use the FX Rate
from December 2002 on June 30, 2003 and September 30, 2003.  The interim financial statements for Q1, Q2
and Q3 of 2003 therefore did not accurately reflect any unrealized exchange
losses or gains and the outstanding balance of the obligation.


 


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58.           In early July 2003, the Error was raised with
Biovail by BLI.  Biovail represents that
no immediate steps were taken to analyse the issue and confirm whether the
appropriate accounting treatment was being used.  The interim financial statements issued for
Q2 2003 and Q3 2003 continued to record the debt obligation based on the FX
Rate as of December 2002.


 


59.           In 2004, in consultation with its auditors, Biovail
took steps to file restated interim financial statements for Q1, Q2 and Q3
2003.  Biovail disclosed the Error in a
Press Release on March 3, 2004 and filed its restated interim financial
statements on May 14, 2004. As a result of the restatement, Biovail’s net
income decreased by U.S. $5.4 million and $3.9 million for the Q1 and Q2 2003
Financial Statements respectively, and increased by $3.1 million for the Q3
2003 Financial Statements.


 


60.           In relation to the Error, Biovail failed to
promptly analyze and deal with an issue that had the potential to, and did in
fact, have a material effect on their financial statements.  This resulted in the material under-reporting
of income in one quarter, and the material over-reporting of income in two
quarters.  Biovail’s conduct in this
regard was contrary to Ontario securities law and the public interest.


 


Biovail’s
Statements in Press Releases — The Truck Accident


 


61.           Biovail made statements in press releases issued on
October 3, 8 and 30, 2003 and March 3, 2004 that, in a material
respect, inaccurately disclosed the implications, for Biovail, of a truck
accident that occurred on October 1, 2003.


 


62.           The press releases concerned Biovail’s disclosure
that its preliminary financial results for its third quarter of 2003 would be
below previously issued guidance. 
Particulars of the  statements are
outlined below.


 


(a)           Biovail’s
Revenue and Earnings Expectations


 


63.           On February 7, 2003, Biovail publicly
disclosed in a press release its revenue and earnings guidance for 2003.  The revenue range projected for the third
quarter of 2003 was U.S. $260 million to U.S. $300 million.


 


13

















 


64.           Biovail did not achieve its third quarter 2003
revenue and earnings expectations. 
Rather, in its October 30, 2003 press release, Biovail reported
U.S. $215.3 million in revenue for that quarter.


 


(b)           The October 3,
2003 Press Release


 


65.           In a press release issued on October 3, 2003
(the “October 3, 2003 Press Release”), Biovail stated that its preliminary
results for its 2003 third quarter “will be below previously issued
guidance...Contributing significantly to this unfavourable variance was the loss
of revenue and income associated with a significant in-transit shipment loss of
Wellbutrin XL as a result of a traffic accident ... Revenue associated with this
shipment is in the range of [U.S.] $10 to [U.S.] $20 million”.


 


66.           A truck carrying WXL tablets, destined for GSK’s
facility in the United States, departed from Biovail’s warehouse in Steinbach,
Manitoba on September 30, 2003.


 


67.           The contractual delivery term between Biovail and
GSK meant that Biovail would be entitled to recognize the revenue associated
with a WXL shipment only when that shipment reached GSK’s facility.


 


68.           The truck carrying the WXL shipment was scheduled
to reach GSK’s facility after September 30, 2003. Biovail, therefore,
could recognize the revenue associated with the WXL shipment only in its fourth
quarter which ended on December 31, 2003.


 


69.           On October 1, 2003, the truck carrying the WXL
shipment was involved in an accident. However, given the f.o.b. destination
contractual term, the truck accident had no impact on Biovail’s revenue for its
2003 third quarter.


 


70.           The traffic accident referred to in the press release
was therefore not a reason for Biovail’s failure to meet its previously issued
revenue guidance for the third quarter of 2003.


 


71.           The October 3, 2003 Press Release also stated
that “[r]evenue associated with the [WXL] shipment was in the range of [U.S.]
$10 million to [U.S.] $20 million”.  


 


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This statement was incorrect. 
Regardless of the truck accident, Biovail would not have been able to
recognize the associated revenue until its fourth quarter for the reasons
outlined above.  Further, Biovail’s
statement that the value of the WXL shipment was U.S. $10 million to U.S. $20
million was materially in error.  Biovail
later stated in a March 3, 2004 press release, discussed below, that the “actual
revenue loss” from the shipment on the truck was U.S. $5 million.


 


(c)           The October 8,
2003 Press Release


 


72.           On October 8, 2003, Biovail issued a further
press release (the “October 8, 2003 Press Release”) which stated that
Biovail had recovered the WXL shipment involved in the accident and that 60
percent of the shipment was saleable and might be re-shipped within 30
days.  The press release went on to state
“Biovail re-confirms that the sales value of these goods is within previously
stated guidance”.


 


(d)           The October 30,
2003 Press Release


 


73.           In its earnings press release for the third quarter
of 2003 issued on October 30, 2003 (the “October 30, 2003 Press
Release”), Biovail stated that “[a] late third quarter 2003 shipment of
Wellbutrin XL involved in an accident outside of Chicago was returned to
Biovail’s facility on October 8, 2003 for inspection.  No revenue was recognized from this shipment
in Q3 2003.”


 


(e)           The March 3,
2004 Press Release


 


74.           The March 3, 2004 Press Release stated that “Biovail
announced [on October 3, 2003] that its estimated revenue from Wellbutrin
XL for third quarter 2003 would be less than [U.S.] $10 million partially as a
result of the truck accident and that the loss in revenue due to the accident
would be in the range of [U.S.] $10.0 million to [U.S.] $20.0 million”.  The March 3, 2004 Press Release further
stated that “the actual revenue loss from the accident was determined to be
[U.S.] $5.0 million”. In fact, Biovail knew that there was no revenue loss in
Q3 2003 as a result of the truck accident.


 


15

















 


75.           The October 8 and October 30, 2003 Press
Releases, and the March 3, 2004 Press Release continued to disseminate the
prior information provided by Biovail in its October 3, 2003 Press Release
and failed to correct the incorrect information previously provided to the
investing public.


 


(f)            October 3,
2003 Analyst Call


 


76.           Biovail held a conference call with analysts and a
webcast held on October 3, 2003 following the release of the October 3,
2003 Press Release (the “October 3, 2003 Analyst Call”).  During the October 3, 2003 Analyst Call,
Biovail stated that the accident would have a material negative financial
impact on its third quarter revenues. 
Biovail further stated that the negative impact of the truck accident on
revenue would be in the range of U.S. $15 million to U.S. $20 million.


 


77.           During the October 3, 2003 Analyst Call, an
analyst questioned whether the accident would have fourth quarter rather than
third quarter implications. Biovail responded that it was purely a third
quarter issue.


 


78.           For the reasons previously described, the above
statements were incorrect in a material respect.


 


(g)           October 2003
Investor Meetings


 


79.           In October 2003, Biovail held a series of
meetings with investors to, among other things, deal with questions surrounding
the truck accident and the related announcements that followed (the “Investor
Meetings”). The Investor Meetings took place in various cities on October 10,
13, 14 and 15 of 2003.  The presentation
materials contained similar incorrect statements to those described above.


 


80.           Specifically, the presentation materials included a
slide with the heading “Revised third quarter guidance” which stated “Revenue
and EPS effected (sic) by three items[:] 1. Wellbutrin XL shipment / traffic
accident ...”.  Another slide entitled “Wellbutrin
XL — timing issue” stated “Impact to Q3 ... Revenue [U.S.] $10 to [U.S.] $20
million”.


 


16

















 


81.           In summary, in the October 3, 2003 Press
Release, Biovail made the claim that a truck accident was one of the reasons
for Biovail’s failure to meet previously issued revenue guidance for the
quarter. Also, Biovail disseminated information in its statement that the revenue
associated with the WXL shipment was in the range of U.S. $10 million to U.S.
$20 million.  Biovail repeated, or
implicitly reinforced these claims during the October 3, 2003 Analyst
Call, and in statements made in the October 8, 2003 Press Release, the October 30,
2003 Press Release, the March 3, 2004 Press Release and the Investor
Meetings.


 


82.           Biovail should have taken greater care, from the
outset, to accurately assess the revenue associated with the product on the
truck, and to accurately assess whether, but for the accident, it would have
been able to recognize revenue from the sale of the product on the truck in
Q3.  Upon learning the true state of
affairs, Biovail should have clearly disclosed, at the earliest opportunity,
that the truck accident was a Q4 issue. 
Biovail should have clearly disclosed, at the earliest opportunity, the
revenue associated with the product on the truck.  Biovail should have clearly disclosed, at the
earliest opportunity, that previous statements suggesting that the truck
accident was one of the reasons for the Q3 earnings miss, and that the revenue
associated with the product on the truck was between $10 million and $20
million, were incorrect.  By failing to
do so, Biovail violated Ontario securities law and engaged in conduct contrary
to the public interest.


 


V.            TERMS OF SETTLEMENT


 


83.           Biovail agrees to the terms of settlement listed
below.


 


84.           The Commission will make an order pursuant to
section 127(1) and section 127.1 of the Act that:


 


(a)           The Settlement Agreement be approved;


 


(b)           Biovail be reprimanded;


 


17

















 


(c)                                  Biovail pay an administrative penalty of CAN$5
million, to be paid to or for the benefit of third parties designated by the
Commission, pursuant to section 3.4(2) of the Act;


 


(d)                                 Biovail pay CAN$1.5 million in respect of a portion
of the costs of the investigation and hearing in relation to his matter;


 


(e)                                  Pursuant to a Consent Final Judgment entered in the
United States District Court for the Southern District of New York in Securities and Exchange Commissions v. Biovail
Corporation, et al.,  dated
March 18, 2008, Biovail has retained a consultant (the “Consultant”) to
conduct a comprehensive examination and review of Biovail’s internal accounting
controls, policies and procedures, training, ethics and compliance policies and
procedures and other matters (the “Review”). 
The terms of reference for the Consultant are attached hereto as
Schedule “C”.  The Consultant is required
to provide reports from time to time to Biovail’s board of directors, audit
committee and the United States Securities and Exchange Commission.  Biovail will provide Staff with copies of any
such reports;


 


(f)                                    Biovail shall retain a further consultant
acceptable to Staff (the “Ontario Consultant”) to examine and report on Biovail’s
training of its personnel concerning compliance with the financial and other
reporting requirements of Ontario securities law (the “Ontario Review”).  In conducting the Ontario Review, the Ontario
Consultant shall consider the investigations carried out by, and the reports
prepared by, the Consultant pursuant to the Review, and may conduct such
further investigations as are reasonably necessary.  The terms of reference for the Ontario Review
are attached hereto as Schedule “D”; and


 


(g)                                 Biovail shall use its best efforts to ensure that
individuals who are current or former Biovail employees, and whom Staff wishes
to interview, or call to testify at the hearing in this proceeding, are made
available as Staff may reasonably require. 
Biovail shall use its best efforts to provide such 


 


18

















 


additional documentation as Staff may reasonably require for the
purposes of this proceeding.


 


VI.           STAFF COMMITMENT


 


85.           If the Commission approves this Settlement
Agreement, Staff will not commence  any
proceeding against Biovail under Ontario securities law in relation to the
facts alleged in the Notice of Hearing.


 


86.           If the Commission approves this Settlement
Agreement and Biovail fails to comply with any of the terms of the Settlement
Agreement, Staff may bring proceedings under Ontario securities law against
Biovail. These proceedings may be based on, but are not limited to, the facts
alleged in the Notice of Hearing as well as the breach of the Settlement
Agreement.


 


VII.         PROCEDURE
FOR APPROVAL OF SETTLEMENT


 


87.           The parties will seek approval of this Settlement
Agreement at a public hearing before the Commission according to the procedures
set out in this Settlement Agreement and the Commission’s Rules of
Practice.


 


88.           Staff and Biovail agree that this Settlement
Agreement will form all of the agreed facts that will be submitted at the
settlement hearing, unless the parties agree that additional facts should be
submitted at the settlement hearing.


 


89.           If the Commission approves this Settlement
Agreement, Biovail agrees to waive all rights to a full hearing, judicial
review or appeal of this matter under the Act.


 


90.           If the Commission approves this Settlement
Agreement, neither party will make any public statement that is inconsistent
with this Settlement Agreement or with any additional agreed facts submitted at
the settlement hearing.


 


91.           Whether or not the Commission approves this
Settlement Agreement, Biovail will not use, in any proceeding, this Settlement
Agreement or the negotiation or process of approval of this agreement as the
basis for any attack on the Commission’s 


 


19

















 


jurisdiction, alleged bias, alleged unfairness, or any other remedies or
challenges that may otherwise be available.


 


PART VIII — DISCLOSURE
OF SETTLEMENT AGREEMENT


 


92.           If the Commission does not approve this Settlement
Agreement or does not make the order attached as Schedule “A” to this
Settlement Agreement:


 


(a)                                  this
Settlement Agreement and all discussions and negotiations between Staff and
Biovail before the settlement hearing takes place will be without prejudice to
Staff and Biovail; and


 


(b)                                 Staff
and Biovail will each be entitled to all available proceedings, remedies and
challenges, including proceeding to a hearing of the allegations contained in
the Notice of Hearing.  Any proceedings,
remedies and challenges will not be affected by this Settlement Agreement, or
by any discussions or negotiations relating to this agreement.


 


93.           Both parties will keep the terms of the Settlement
Agreement confidential until the Commission approves the Settlement
Agreement.  At that time, the parties
will no longer have to maintain confidentiality.  If the Commission does not approve the
Settlement Agreement, both parties must continue to keep the terms of the
Settlement Agreement confidential, unless they agree in writing not to do so or
if required by law.


 


PART IX — EXECUTION OF SETTLEMENT AGREEMENT


 


94.           The parties may sign separate copies of this
agreement. Together, these signed copies will form a binding agreement.


 


95.           A fax copy of any signature will be treated as an
original signature.


 


20

















 


DATED AT Toronto, this 7th day of January, 2009


 


	
   

  	
  STAFF OF THE ONTARIO SECURITIES COMMISSION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  Name:
  Peggy Dowdall-Logie

  
	
   

  	
   

  	
   

  	
  Title:
  Executive Director 

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  BIOVAIL CORPORATION

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  Name:
  Wendy Kelley

  
	
   

  	
   

  	
   

  	
  Title:
  General Counsel & Corporate Secretary

  
	
   

  	
   

  	
   

  	
  I
  have authority to bind the corporation

  



 


21














 


SCHEDULE — “A” — DRAFT ORDER


 


IN THE MATTER OF THE SECURITIES ACT,


R.S.O. 1990, c.S.5, as amended


 


- and —


 


IN THE MATTER OF BIOVAIL
CORPORATION, EUGENE N. MELNYK, BRIAN H. CROMBIE, JOHN R. MISZUK and KENNETH G.
HOWLING


 


ORDER


(Sections 127 and 127.1)


 


WHEREAS on March 24, 2008 the Ontario Securities
Commission (the “Commission”) issued a Notice of Hearing and related Statement
of Allegations (the “Notice of Hearing”) against Biovail Corporation (“Biovail”),
Eugene N. Melnyk , Brian H. Crombie, John R. Miszuk  and Kenneth G. Howling;


 


AND WHEREAS Biovail has entered into a settlement agreement with
Staff of the Commission dated January 7, 2009 (the “Settlement Agreement”)
in relation to the matters set out in the Notice of Hearing;


 


UPON reviewing the Notice of Hearing and Settlement
Agreement, and upon hearing submissions from counsel for Biovail and for Staff
of the Commission;


 


AND WHEREAS the Commission is of the opinion that it is in the
public interest to make this Order;


 


IT IS
HEREBY ORDERED that:


 


1.                                       The Settlement Agreement is approved.


 


2.                                       Biovail is reprimanded.


 


22

















 


3.                                       Biovail shall pay an administrative penalty of
CAN$5,000,000.00 to be paid to or for the benefit of third parties designated
by the Commission, pursuant to section 3.4(2) of the Act.


 


4.                                       Biovail shall pay CAN$1,500,000.00 in respect of a
portion of the costs of the investigation and hearing in relation to his
matter.


 


5.                                       Pursuant to a Consent Final Judgment entered in the
United States District Court for the Southern District of New York in Securities and Exchange Commissions v. Biovail
Corporation, et al.,  dated
March 18, 2008, Biovail has retained a consultant (the “Consultant”) to
conduct a comprehensive examination and review of Biovail’s internal accounting
controls, policies and procedures, training, ethics and compliance policies and
procedures and other matters (the “Review”). 
The terms of reference for the Consultant are attached to the Settlement
Agreement as Schedule “C”.  The
Consultant is required to provide reports from time to time to Biovail’s board
of directors, audit committee and the United States Securities and Exchange
Commission.  Biovail will provide Staff
with copies of any such reports.


 


6.                                       Biovail shall retain a further consultant
acceptable to Staff (the “Ontario Consultant”) to examine and report on Biovail’s
training of its personnel concerning compliance with the financial and other
reporting requirements of Ontario securities law (the “Ontario Review”).  In conducting the Ontario Review, the Ontario
Consultant shall consider the investigations carried out by, and the reports
prepared by, the Consultant pursuant to the Review, and may conduct such
further investigations as are reasonably necessary.  The terms of reference for the Ontario Review
are attached to the Settlement Agreement as Schedule “D”.


 


7.                                       Biovail shall use its best efforts to ensure that
individuals who are current or former Biovail employees, and whom Staff wishes
to interview, or call to testify at the hearing in this proceeding, are made
available as Staff may reasonably require. 
Biovail shall use its best efforts to provide such additional
documentation as Staff may reasonably require for the purposes of this
proceeding.


 


23

















 


Dated at Toronto this            day of January, 2009.


 


 




	
   

  	
   

  	
   

  






 


 




	
   

  	
   

  	
   

  






 


24

















 


SCHEDULE “B” — BIOVAIL’S PUBLIC DISCLOSURE


 


	
  Document
  Description

  	
   

  	
  Content

  	
   

  	
  Filing Date

  
	
  Form 20-F — For the year ended
  December 31, 2001

  	
   

  	
  AIF, Cdn. and U.S. GAAP MD&A and financial
  statements

  	
   

  	
  21-May-2002

  
	
  Form 20-F — For the year ended
  December 31, 2002

  	
   

  	
  AIF, Cdn. and U.S. GAAP MD&A and financial
  statements

  	
   

  	
  20-May-2003

  
	
  Form 6K — For the quarter ended
  September 30, 2001

  	
   

  	
  U.S. GAAP MD&A and financial statements

  	
   

  	
  13-Nov-2001

  
	
  Third Quarter 2001 Interim Report  - For Canadian Regulatory Purposes

  	
   

  	
  Cdn. GAAP MD&A and financial statements

  	
   

  	
  13-Nov-2001

  
	
  Form 6K - For the quarter ended
  March 31, 2002

  	
   

  	
  Cdn.. and U.S. GAAP MD&A and financial
  statements

  	
   

  	
  30-May-2002

  
	
  Form 6K - For the quarter ended
  June 30, 2002

  	
   

  	
  Cdn. and U.S. GAAP MD&A and financial
  statements

  	
   

  	
  29-Aug-2002

  
	
  Form 6K - For the quarter ended
  September 30, 2002

  	
   

  	
  Cdn. and U.S. GAAP MD&A and financial statements

  	
   

  	
  26-Nov-2002

  
	
  Shelf Prospectus

  	
   

  	
  —

  	
   

  	
  05-Nov-2001

  
	
  Prospectus Supplement

  	
   

  	
  —

  	
   

  	
  14-Nov-2001

  
	
  Prospectus Supplement

  	
   

  	
  —

  	
   

  	
  26-Mar-2002

  



 


25

















 


SCHEDULE “C” — TERMS OF REFERENCE
FOR THE CONSULTANT


 


5.                                       Defendant
agrees to comply with the following undertakings:


 


A.                                   Retention of a
Consultant


 


i.                                          Biovail shall
retain, pay for, and enter into an agreement with an independent consultant (“Consultant”),
not unacceptable to the Commission staff, to conduct a comprehensive
examination and review of the areas specified below and to make recommendations
to Biovail’s board of directors and the Commission staff. The Consultant’s
compensation and expenses shall be borne exclusively by Biovail, and shall not
be deducted from any amount due under the provisions of the Final Judgment.


 


ii.                                       The agreement
with the Consultant (“Agreement”) shall provide that the Consultant examine:


 


a.                                  Biovail’s
internal accounting controls and its
internal  controls over
financial reporting, provided, however, that the Consultant may, if
appropriate, rely on Biovail’s independent accountant’s attestation and report
on management’s assessment of the effectiveness of Biovail’s internal control
structure and procedures pursuant to Section 404 of the Sarbanes-Oxley Act;


 


b.                                 The policies,
procedures, and effectiveness of Biovail’s regulatory and compliance functions,
including the operations of any committees or other mechanisms established to
review and approve transactions or for the purpose of preventing the recording
of transactions or financial reporting results in a manner that is not in
compliance with U.S. generally accepted accounting principles;


 


c.                                       Biovail’s
training of its accounting staff concerning financial reporting and U.S.
generally accepted accounting principles;


 


d.                                      Biovail’s
ethics and compliance policies, including the adequacy and effectiveness of any
whistleblower procedures designed to allow employees and others to report
confidentially matters that may bear on Biovail’s financial reporting
obligations;


 


e.                                       Biovail’s
records management and retention policies and procedures, including without
limitation such procedures with respect to e-mail and other electronically
stored information;


 


f.                                         The functioning
of Biovail’s audit committee, including 


 


26

















 


the audit committee’s
policies and procedures and the methods for the selection of its members;


 


g.                                      Biovail’s
policies and procedures with respect to compliance with Rule 302(b) of
Regulation S-T;


 


h.                                      Biovail’s
investor relations and public affairs functions, including policies and
procedures designed to enhance the quality and accuracy of Biovail’s press
releases, investor conference calls, and other similar public disclosures;


 


i.                                          Biovail’s policies
and procedures concerning its communications with its outside auditors.


 


B.                                 Consultant’s
Reporting Obligations


 


i.                                                      The Consultant
shall issue a report to Biovail’s board of directors, its audit committee, and
to the Commission staff within three months of appointment, provided however,
that the Consultant may seek to extend the period of review for one additional
three-month term by requesting such an extension from the Commission’s staff.
The Commission’s staff, after consultation with Biovail, shall have discretion
to grant such extension for the period requested if deemed reasonable and
warranted.


 


ii.                                                   The Consultant’s
report shall address the Consultant’s review of the areas specified in
paragraph 5.A.ii above and shall include a description of the review performed,
the conclusions reached, the Consultant’s recommendations for any changes or
improvements to Biovail’s policies and procedures as the Consultant reasonably
deems necessary to conform to the law and best practices, and a procedure for implementing
the recommended changes or improvements.


 


iii.                                                Biovail shall
adopt a11 recommendations contained in the Consultant’s report, provided,
however, that within forty-five days of its receipt of the report, Biovail
shall in writing advise the Consultant and the Commission staff of any
recommendation that it considers to be unnecessary or inappropriate. With
respect to any recommendation that Biovail considers unnecessary or
inappropriate, Biovail need not adopt that recommendation at that time but shall
propose in writing an alternative policy, procedure, or system designed to
achieve the same objective or purpose.


 


iv.                                               As to any
recommendations of the Consultant with respect to which Biovail and the
Consultant do not agree, such parties shall attempt in good faith to 


 


27

















 


reach an agreement within ninety days of the issuance of the Consultant’s
report. In the event Biovail and the Consultant are unable to agree on an
alternative proposal, Biovail shall abide by the determinations of the
Consultant.


 


v.                                                  Biovail shall
retain the Consultant for a period of twelve months from the date of
appointment in accordance with paragraph 5.C below. After the Consultant’s
recommendations become final pursuant to paragraph 5.B above, the Consultant
shall oversee the implementation of such recommendations and provide a report
to Biovail’s board of directors, its audit committee, and to the Commission
staff twelve months after appointment concerning the progress of the implementation.
If, at the conclusion of this twelve-month period, less than all the
recommendations of the consultant (to the extent deemed significant by the
Commission staff) have been substantially implemented for at least two
successive fiscal quarters, the Commission staff may, in its discretion, direct
Biovail to extend the Consultant’s term of appointment until such time as all
recommendations (to the extent deemed significant by the Commission staff) have
been substantially implemented for at least two successive fiscal quarters.


 


vi.                                               In addition to
the reports identified above, the Consultant shall provide Biovail’s board of
directors, its audit committee, and the Commission staff with such documents or
other information concerning the areas specified in paragraph 5.A.ii above as
any of them may request during the pendency or at the conclusion of the review.


 


C.                                 Terms of
Consultant’s Retention


 


i.                                          Within
forty-five days after the date of entry of the Final Judgment, Biovail will
submit to the Commission staff a proposal setting forth the identity,
qualifications, and proposed terms of retention of the Consultant. The
Commission staff, within thirty days of such notice, will either (a) deem
Biovail’s choice of Consultant and proposed terms of retention not unacceptable
or (b) require Biovail to propose an alternative Consultant and/or revised
proposed terms of retention within fifteen days. This process will continue, as
necessary, until the proposed Consultant and retention terms are not
unacceptable to the Commission staff.


 


ii.                                       The Consultant
shall have reasonable access to all of Biovail’s books and records and the
ability to meet privately with Biovail’s personnel. Biovail shall 


 


28

















 


instruct and otherwise encourage its
officers, directors, and employees to cooperate fully with the review conducted
by the Consultant, and inform its officers, directors, and employees that
failure to cooperate with the review  may be grounds for dismissal,
other disciplinary actions, or other appropriate actions.


 


iii.                                    The Consultant
shall have the right, as reasonable and necessary in his or her judgment, to
retain, at Biovail’s expense, attorneys, accountants, and other persons or
firms, other than officers, directors, or employees of Biovail, to assist in
the discharge of the Consultant’s obligations. Biovail shall pay all reasonable
fees and expenses (as reasonably documented) of any persons or firms retained
by the Consultant.


 


iv.                                   The Consultant
shall make and keep notes of interviews conducted, and keep a copy of documents
gathered,. in connection with the performance of his or her responsibilities,
and require all persons and firms retained to assist the Consultant to do so as
well.


 


iv.                                   If the
Consultant determines that he or she has a conflict with respect to one or more
of the areas described in  paragraph 5.A.ii above, he or she
shall delegate his or her responsibilities with respect to that subject to a
person who is chosen by the Consultant and who is not unacceptable to the
Commission staff.


 


vi.                                   For the period
of engagement and for a period of two years from completion of the engagement,
the Consultant shall not enter into any employment, consultant,
attorney-client, auditing, or other professional relationship with Biovail, or
any of its present or former affiliates, directors, officers, employees, or
agents acting in their capacity as such, and shall require that any firm with
which the Consultant is affiliated or of which the Consultant is a member, or
any person engaged to assist the Consultant in performance of the Consultant’s
duties under the Final Judgment not, without prior written consent of the
Commission staff, enter into any employment, consultant, attorney-client,
auditing, or other professional relationship with Biovail, or any of its
present or former affiliates, directors, officers, employees, or agents acting
in their capacity as such for the period of the engagement and for a period of
two years after the engagement.


 


29






 










 


SCHEDULE
“D” — TERMS OF REFERENCE FOR


THE
ONTARIO REVIEW


 


A.                                   Retention of
the Ontario Consultant


 


i.                                          The Ontario
Consultant’s compensation and expenses shall be borne exclusively by Biovail.


 


B.                                     The Ontario
Consultant’s Reporting Obligations


 


i.                                          The Ontario
Consultant shall issue a report to Biovail’s board of directors, its audit
committee, and to Staff within three months of appointment, provided however,
that the Ontario Consultant may seek to extend the period of review for one
additional three-month term by requesting such an extension from Staff.  Staff, after consultation with Biovail, shall
have discretion to grant such extension for the period requested if deemed
reasonable and warranted.


 


ii.                                       The Ontario
Consultant’s report shall address the Ontario Consultant’s review of the areas
specified in paragraph 84(f) of the Settlement Agreement and shall include
a description of the review performed, the conclusions reached, the Ontario
Consultant’s recommendations for any changes or improvements to Biovail’s
policies and procedures as the Ontario Consultant reasonably deems necessary to
conform to the law and best practices, and a procedure for implementing the
recommended changes or improvements.


 


iii.                                    Biovail shall
adopt all recommendations contained in the Ontario Consultant’s report,
provided, however, that within forty-five days of its receipt of the report,
Biovail shall in writing advise the Ontario Consultant and Staff of any
recommendation that it considers to be unnecessary or inappropriate. With
respect to any recommendation that Biovail considers unnecessary or
inappropriate, Biovail need not adopt that recommendation at that time but
shall propose in writing an alternative policy, procedure, or system designed
to achieve the same objective or purpose.


 


30

















 


iv.                                   As to any
recommendations of the Ontario Consultant with respect to which Biovail and the
Ontario Consultant do not agree, such parties shall attempt in good faith to
reach an agreement within ninety days of the issuance of the Ontario Consultant’s
report.  In the event Biovail and the
Ontario Consultant are unable to agree on an alternative proposal, Biovail
shall abide by the determinations of the Ontario Consultant.


 


v.                                      Biovail shall
retain the Ontario Consultant for a period of twelve months from the date of
appointment.  After the Ontario
Consultant’s recommendations become final pursuant to paragraph iv above, the
Ontario Consultant shall oversee the implementation of such recommendations and
provide a report to Biovail’s board of directors, its audit committee, and to
Staff twelve months after appointment concerning the progress of the
implementation.  If, at the conclusion of
this twelve-month period, less than all the recommendations of the consultant
(to the extent deemed significant by Staff) have been substantially implemented
for at least two successive fiscal quarters, Staff may, in its discretion,
direct Biovail to extend the Ontario Consultant’s term of appointment until
such time as all recommendations (to the extent deemed significant by Staff)
have been substantially implemented for at least two successive fiscal
quarters.


 


vi.                                   In addition to
the reports identified above, the Ontario Consultant shall provide Biovail’s
board of directors, its audit committee, and Staff with such documents or other
information concerning the areas specified in paragraph 84(f) of the
Settlement Agreement as any of them may request during the pendency or at the
conclusion of the review.


 


C.                                     Terms of the
Ontario Consultant’s Retention


 


i.                                          Within
forty-five days after the approval of the Settlement Agreement, Biovail will
submit to Staff a proposal setting forth the identity, qualifications, and
proposed terms of retention of the Ontario Consultant. Staff, within thirty
days of such notice, will either (a) deem Biovail’s choice of Ontario
Consultant and proposed terms of retention not unacceptable or 


 


31

















 


(b) require Biovail to
propose an alternative Ontario Consultant and/or revised proposed terms of
retention within fifteen days. This process will continue, as necessary, until
the proposed Ontario Consultant and retention terms are not unacceptable to
Staff.


 


ii.                                       The Ontario
Consultant shall have reasonable access to all of Biovail’s books and records
and the ability to meet privately with Biovail’s personnel. Biovail shall
instruct and otherwise encourage its officers, directors, and employees to
cooperate fully with the review conducted by the Ontario Consultant, and inform
its officers, directors, and employees that failure to cooperate with the Ontario Review  may be grounds for dismissal, other disciplinary
actions, or other appropriate actions.


 


iii.                                    The Ontario
Consultant shall have the right, as reasonable and necessary in his or her
judgment, to retain, at Biovail’s expense, lawyers, accountants, and other
persons or firms, other than officers, directors, or employees of Biovail, to
assist in the discharge of the Ontario Consultant’s obligations. Biovail shall
pay all reasonable fees and expenses (as reasonably documented) of any persons
or firms retained by the Ontario Consultant.


 


iv.                                   The Ontario
Consultant shall make and keep notes of interviews conducted, and keep a copy
of documents gathered, in connection with the performance of his or her
responsibilities, and require all persons and firms retained to assist the
Ontario Consultant to do so as well.


 


32