Document:

Exhibit
10.33

 

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

 

	
  IN
  RE BIOVAIL CORPORATION

  SECURITIES LITIGATION

  	
   

  	
  Master
  File No. 03-CV-8917 (GEL)

  

 

STIPULATION AND AGREEMENT OF SETTLEMENT

 

This Stipulation and Agreement of Settlement (the “Stipulation”) is
entered into in the above-captioned action (the “Action”) by and among Lead
Plaintiffs Ontario Teachers’ Pension Plan Board and Local 282 Welfare Trust
Fund (“Lead Plaintiffs”) on behalf of themselves and the other members of the Class (as
hereinafter defined) and Defendants Biovail Corporation (“Biovail”), and
individual defendants Eugene N. Melnyk, Brian H. Crombie, John R. Miszuk,
Kenneth Howling, and Rolf Reininghaus (the “Individual Defendants”) (Biovail
and the Individual Defendants are collectively referred to hereinafter as the “Defendants”),
by and through their undersigned respective counsel, subject to approval of the
United States District Court for the Southern District of New York pursuant to Rule 23(e) of
the Federal Rules of Civil Procedure.

 

WHEREAS:

 

A.            Beginning on or
about November 12, 2003, thirteen class action complaints were filed in
the United States District Court for the Southern District of New York against
certain of the Defendants.  The actions
were styled Hays v. Biovail Corp., et al.,
Civil Action No. 03-8917 (RO); Chrapko
v. Biovail Corp et al., Civil Action No. 03-8979 (RO); Felgoise v. Biovail Corp. et al., Civil
Action No. 03-09002 (unassigned); Newby
v. Biovail Corp. et al., Civil Action No. 03-9011 (unassigned);
Welsh v. Biovail Corp. et al.,
Civil Action No. 03-9293 (unassigned); Sobel
v. Biovail Corp. et al., Civil Action No. 03-9480 (unassigned);
Shi v. Biovail Corp. et al., 

 

 

Civil Action No. 03-9590 (RO); Abrahamson v. Biovail Corp. et al., Civil Action No. 03-9616
(JFK); Gokhale v. Biovail Corp. et al., Civil
Action No. 03-9701 (GBD); Pierce v. Biovail et al.,
Civil Action No. 03-9914 (RO); Emery v. Biovail Corp. et
al., Civil Action No. 03-10058 (unassigned); Wojciechowski v. Biovail Corp. et al., Civil Action No. 03-10221
(HB); Rand v. Biovail Corp. et al., Civil
Action No. 04-00188 (unassigned). 
By Order Consolidating All Related Actions, Appointing Co-Lead
Plaintiffs and Approving Their Selection of Co-Lead Counsel entered March 9,
2004 (“March 9, 2004 Order”), these actions, together with any
subsequently filed or transferred actions on behalf of investors who purchased
Biovail securities related to the claims asserted in these actions were
consolidated for all purposes.  The March 9,
2004 Order also appointed Ontario Teachers’ Pension Plan Board and Local 282
Welfare Trust Fund as Co-Lead Plaintiffs and approved their selection of
co-lead counsel for the Action;(1)

 

B.            On June 18,
2004, Lead Plaintiffs filed the Consolidated Amended Class Action Complaint
asserting claims under Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934 and Rule 10b-5 promulgated thereunder (the “First
Amended Complaint”).  The First Amended
Complaint generally alleges violations of the federal securities laws through,
among other things, misstatements and omissions by Defendants in Communications
(as defined below) regarding two drugs that would be launched in 2003, Cardizem
LA and Wellbutrin XL, and the projections that they gave Wall Street which were
based on the successful launches of those drugs.  The First Amended Complaint sought to proceed
on behalf of a class consisting of all persons who purchased Biovail publicly
traded common stock during the period February 7, 2003 through and
including March 2, 2004, excluding certain named persons and entities;

 

(1) 
The March 9, 2004 Order also appointed a third lead plaintiff whose motion
to voluntarily withdraw as such was granted by Order entered on April 7,
2005.

 

 

C.            On September 28,
2004 Defendants moved to dismiss the First Amended Complaint.  The motion was denied by Order entered December 22,
2004.  Defendants answered the First
Amended Complaint on February 4, 2005;

 

D.            On February 28,
2006, Lead Plaintiffs’ filed their motion (i) to certify the Action as a
class action, (ii) to certify Lead Plaintiffs as well as Plaintiff City of
Dearborn Heights Act 345 Pension System as Class Representatives, and (iii) to
certify Co-Lead Counsel as Class Counsel. 
The motion was fully briefed and argued to the Court and was sub judice at the time the agreement in
principle to settle the Action was reached;

 

E.             On August 25,
2006, Lead Plaintiffs filed the Consolidated Second Amended Class Action
Complaint (the “Complaint”) which generally alleges, among other things, that,
in Communications in connection with the launching and marketing of Cardizem LA
and reporting to the public about the launch of Cardizem LA, Biovail, with the
participation of the Individual Defendants issued materially false and
misleading press releases and other statements, including financial statements
filed with the SEC, regarding Cardizem LA and Biovail’s financial condition
during the Class Period in a scheme to artificially inflate the value of
Biovail’s common stock;

 

F.             The Complaint
further alleges that Lead Plaintiffs and the other members of the Class purchased
the common stock of Biovail during the Class Period at prices artificially
inflated as a result of the Defendants’ dissemination in Communications of
materially false and misleading statements regarding Biovail in violation of
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5
promulgated thereunder;

 

G.            On October 20,
2006, Defendants answered the Complaint;

 

 

H.            The Defendants deny
any wrongdoing whatsoever and this Stipulation shall in no event be construed
or deemed to be evidence of or an admission or concession on the part of any
Defendant with respect to any claim or of any fault or liability or wrongdoing
or damage whatsoever, or any infirmity in the defenses that the Defendants have
asserted.  The parties to this
Stipulation recognize, however, that the litigation has been filed by
Plaintiffs and defended by Defendants in good faith and in compliance with Federal
Rule of Civil Procedure 11, that the litigation is being voluntarily
settled after advice of counsel, and that the terms of the settlement are fair,
adequate and reasonable.  This
Stipulation shall not be construed or deemed to be a concession by any
Plaintiff of any infirmity in the claims asserted in the Action;

 

I.              Plaintiffs’
Co-Lead Counsel have conducted an extensive investigation and thorough
discovery relating to the claims and the underlying events and transactions
alleged in the Complaint, including the review of millions of pages of
documents produced by Defendants and third parties and the deposing of
approximately fifteen (15) fact witnesses as of the date the agreement in
principle to settle was reached. 
Plaintiffs’ Co-Lead Counsel have analyzed the evidence adduced during
pretrial discovery and have researched the applicable law with respect to the
claims of Lead Plaintiffs and the other members of the Class against the
Defendants and the potential defenses thereto;

 

J.             In the fall of
2005, the parties mediated before former Judge Nicholas Politan but were unable
to reach an agreement to resolve the Action. 
In December 2007, with the benefit of the development of the Action
and the extensive discovery had since the earlier mediation and with the
assistance of Gary V. McGowan, Esq. acting as a mediator,  Lead Plaintiffs, by their counsel,
conducted discussions and arm’s-length negotiations with counsel for Defendants
with 

 

 

respect to a compromise and settlement of the
Action with a view to settling the issues in dispute and achieving the best
relief possible consistent with the interests of the Class; and

 

K.            Based upon their
investigation and pretrial discovery as set forth above, Lead Plaintiffs and
Plaintiffs’ Co-Lead Counsel have concluded that the terms and conditions of this
Stipulation are fair, reasonable and adequate to Lead Plaintiffs and the other
members of the Class, and in their best interests, and have agreed to settle
the claims raised in the Action pursuant to the terms and provisions of this
Stipulation, after considering (i) the cash and other benefits that Lead
Plaintiffs and the other members of the Class will receive from settlement
of the Action, (ii) the attendant risks of litigation, including in
particular the risks of establishing recoverable damages, and (iii) the
desirability of permitting the Settlement to be consummated as provided by the
terms of this Stipulation.

 

NOW THEREFORE, without any admission or concession on the part of Lead
Plaintiffs of any lack of merit of the Action whatsoever, and without any
admission or concession of any liability or wrongdoing or lack of merit in the
defenses whatsoever by Defendants, it is hereby STIPULATED AND AGREED, by and
among the parties to this Stipulation, through their respective attorneys,
subject to approval of the Court pursuant to Rule 23(e) of the
Federal Rules of Civil Procedure, in consideration of the benefits flowing
to the parties hereto from the Settlement, that all Settled Claims (as defined
below) as against the Released Parties (as defined below) and all Settled
Defendants’ Claims (as defined below) shall be compromised, settled, released
and dismissed with prejudice, upon and subject to the following terms and
conditions:

 

 

CERTAIN
DEFINITIONS

 

1.             As
used in this Stipulation, the following terms shall have the following
meanings:

 

(a)           “Authorized
Claimant” means a Class Member who submits a timely and valid Proof of
Claim form to the Claims Administrator.

 

(b)           “Claims
Administrator” means the firm of Complete Claim Solutions, LLC, which shall
administer the Settlement.

 

(c)           “Class”
means, for the purposes of this Settlement only, all persons and entities who
purchased the common stock of Biovail on the New York Stock Exchange or other
U.S. stock exchanges or the Toronto Stock Exchange or other Canadian stock
exchanges during the period from February 7, 2003, through and including March 2,
2004.  Excluded from the Class are
Biovail, its subsidiaries, affiliates, predecessor and successor entities;
Ernst & Young LLP [U.S. and Canada] and any of their affiliates,
subsidiaries, and predecessor and successor entities; Ernst & Young
LLP [U.S. and Canada] partners and partners of any of their affiliates,
subsidiaries, and predecessor and successor entities; individual defendants
Eugene N. Melnyk, Brian H. Crombie, John R. Miszuk, Kenneth Howling, and Rolf
Reininghaus; members of their immediate families; any entity in which any
defendant has a controlling interest; any person who was an officer or director
of Biovail during the Class Period; and the legal representatives, heirs,
successors or assigns of any of the foregoing excluded persons or
entities.  Also excluded from the Class are
any putative Class Members who exclude themselves by filing a request for
exclusion in accordance with the requirements set forth in the Notice.  “Class Member” means a member of the
Class.

 

 

(d)           “Class Period”
means, for the purposes of this Settlement only, the period between and
including February 7, 2003, and March 2, 2004.

 

(e)           “Communications”
means communications made by Biovail, and the Individual Defendants (as defined
below) in their capacities as officers and/or employees and/or directors of
Biovail, in communicating financial and business information to shareholders
and the general public in the ordinary course of Biovail’s business.

 

(f)            “Court”
means the United States District Court for the Southern District of New York.

 

(g)           “Defendants”
means Biovail and the Individual Defendants.

 

(h)           “Defendants’
Counsel”  means the law firms of
Howrey LLP and Curtis, Mallet-Prevost, Colt & Mosle LLP for Defendant
Biovail and for the Individual Defendants.

 

(i)            “Effective
Date” means the date upon which the Settlement contemplated by this Stipulation
shall become effective, as set forth in ¶ 23 below.

 

(j)            “Escrow
Account” means one or more interest-bearing accounts created, established,
designated, controlled and maintained by Bernstein Litowitz Berger &
Grossmann LLP, acting as agent for the Class, wherein the Settlement Amount (as
specified in ¶ 4 herein) shall be deposited by or at its direction on behalf of
the Class and held in escrow.

 

(k)           “Escrow
Agent” means Valley National Bank, or such other financial institution(s) as
Plaintiffs’ Co-Lead Counsel shall select, which shall be responsible for
overseeing, safeguarding and distributing the Escrow Account, acting as agent
for the Class.

 

(l)            “Final,”
with respect to the Judgment (as defined herein), means: (i) if no appeal
is filed, the expiration date of the time for filing or noticing of any appeal
from the Court’s Judgment approving the Settlement substantially in the form of
Exhibit B hereto, i.e., 

 

 

thirty (30) days after entry of the Judgment;
or (ii) if there is an appeal from the Judgment, the date of final
dismissal of any appeal from the Judgment, or the final dismissal of any
proceeding on certiorari to review the Judgment; or (iii) the date of
final affirmance on an appeal of the Judgment, the expiration of the time to
file a petition for a writ of certiorari, or the denial of a writ of certiorari
to review the Judgment, and, if certiorari is granted, the date of final
affirmance of the Judgment following review pursuant to that grant.  Any proceeding or order, or any appeal or
petition for a writ of certiorari pertaining solely to any plan of allocation
and/or application for attorneys’ fees, costs or expenses, shall not in any way
delay or preclude the Judgment from becoming Final.

 

(m)          “Gross
Settlement Fund” means the Settlement Amount plus any income or interest earned
thereon, while held by the Escrow Agent.

 

(n)           “Individual
Defendants” means Eugene N. Melnyk, Brian H. Crombie, John R. Miszuk, Kenneth
Howling, and Rolf Reininghaus.

 

(o)           “Judgment”
means the proposed judgment to be entered approving the Settlement
substantially in the form attached hereto as Exhibit B.

 

(p)           “Net
Settlement Fund” has the meaning defined in ¶ 5 herein.

 

(q)           “Notice”
means the Notice of Pendency of Class Action and Proposed Settlement,
Motion for Attorneys’ Fees and Settlement Fairness Hearing, which is to be sent
to members of the Class substantially in the form attached hereto as Exhibit 1
to Exhibit A.

 

(r)            “Order
for Notice and Hearing” means the proposed order preliminarily approving the
Settlement and directing notice thereof to the Class substantially in the
form attached hereto as Exhibit A.

 

 

(s)           “Plaintiffs’
Counsel” means Plaintiffs’ Co-Lead Counsel and all other counsel representing Class Member
Plaintiffs in the Action.

 

(t)            “Plaintiffs’
Co-Lead Counsel” means the law firms of Bernstein Litowitz Berger &
Grossmann LLP (“Bernstein Litowitz”) and Milberg LLP (“Milberg”).

 

(u)           “Proof
of Claim” means the proposed proof of claim and release to be executed by Class Members
substantially in the form attached hereto as Exhibit 2 to Exhibit A.

 

(v)           “Publication
Notice” means the Summary Notice of Pendency of Class Action, Proposed
Settlement and Settlement Hearing for publication substantially in the form
attached as Exhibit 3 to Exhibit A.

 

(w)          “Released
Parties” means Biovail and the Individual Defendants, their past or present
subsidiaries, parents, successors and predecessors, officers, directors,
agents, employees, attorneys, insurers, advisors, and investment advisors, and
any person, firm, trust, corporation, officer, director or other individual or
entity in which any Defendant has a controlling interest or which is related to
or affiliated with any of the Defendants, and the legal representatives, heirs,
successors in interest or assigns of any of the Defendants.

 

(x)            “Settled
Claims” means any and all claims, debts, demands, rights or causes of action or
liabilities whatsoever (including, but not limited to, any claims for damages,
interest, attorneys’ fees, expert or consulting fees, and any other costs,
expenses or liability whatsoever), whether based on federal, state, local,
statutory or common law or any other law, rule or regulation, whether
fixed or contingent, accrued or un-accrued, liquidated or un-liquidated, at law
or in equity, matured or un-matured, whether class or individual in nature,
including both known claims and Unknown Claims (as defined herein), (i) that
have been asserted in this Action by the Class Members or any of them
against any of the Released Parties,

 

 

or
(ii) that could have been asserted in any forum by the Class Members
or any of them on behalf of the Class against any of the Released Parties
which arise out of, are related to, or are based upon the allegations,
transactions, facts, matters or occurrences, representations or omissions
involved, set forth, or referred to in the Complaint and which relate to the
purchase, sale or ownership of the securities of Biovail during the Class Period.

 

(y)           “Settled
Defendants’ Claims” means any and all claims, rights or causes of action or
liabilities whatsoever, whether based on federal, state, local, statutory or
common law or any other law, rule or regulation, including both known
claims and Unknown Claims (as defined herein), that have been or could have
been asserted in the Action or any forum by any or all of the Released Parties
against any of the Lead Plaintiffs, any of the other named plaintiffs in these
consolidated actions or any of their attorneys, which arise out of or relate in
any way to the institution, prosecution, or settlement of the Action (except
for claims that arise out of, or are pursuant to, the provisions of this
Settlement).

 

(z)            “Settlement”
means the settlement contemplated by this Stipulation.

 

(aa)         “Settlement
Amount” means the amount specified in ¶ 4 herein.

 

(bb)         “Taxes”
means collectively (i) any and all taxes, duties and similar charges
(including any estimated taxes, withholdings, interest or penalties and
interest thereon) arising in any jurisdiction with respect to the income or
gains earned by or in respect of the Gross Settlement Fund, including, without
limitation, any taxes or tax detriments that may be imposed upon the Defendants
or their counsel with respect to any income earned by the Gross Settlement Fund
for any period during which the Gross Settlement Fund may be finally determined
to not qualify as a Qualified Settlement Fund (within the meaning contemplated
in paragraph 5(b) herein) for federal or state income tax purposes or any
distribution of any portion of the Gross

 

 

Settlement Fund to Authorized Claimants and other persons entitled
hereto pursuant to this Stipulation and (ii) expenses and costs incurred
in connection with the taxation of the Gross Settlement Fund (including,
without limitation, expenses of tax attorneys and accountants).

 

(cc)         “Unknown
Claims” means any and all Settled Claims which any Lead Plaintiff or other Class Member
does not know or suspect to exist in his, her or its favor at the time of the
release of the Released Parties, and any Settled Defendants’ Claims which any
Defendant does not know or suspect to exist in his or its favor, which if known
by him or it might have affected his or its decision(s) with respect to
the Settlement.  With respect to any and
all Settled Claims and Settled Defendants’ Claims, the parties stipulate and
agree that upon the Effective Date, the Lead Plaintiffs and the Defendants
shall expressly waive, and each other Class Member shall be deemed to have
waived, and by operation of the Judgment shall have expressly waived, any and
all provisions, rights and benefits conferred by any law of any state or
territory of the United States, or principle of common law, which is similar,
comparable, or equivalent to Cal. Civ. Code § 1542, which provides:

 

A
general release does not extend to claims which the creditor does not know or
suspect to exist in his or her favor at the time of executing the release,
which if known by him or her must have materially affected his or her
settlement with the debtor.

 

Lead Plaintiffs and Defendants acknowledge, and all
other Class Members by operation of law shall be deemed to have
acknowledged, that the inclusion of “Unknown Claims” in the definition of
Settled Claims and Settled Defendants’ Claims was separately bargained for and
was a key element of the Settlement.

 

 

SCOPE AND EFFECT OF
SETTLEMENT

 

2.             The
obligations incurred pursuant to this Stipulation shall be in full and final
disposition of the Action and any and all Settled Claims as against all
Released Parties and any and all Settled Defendants’ Claims.

 

3.             (a)           Upon the Effective Date of this
Settlement, Lead Plaintiffs and the other members of the Class on behalf
of themselves, their heirs, executors, administrators, predecessors, successors
and assigns, shall, with respect to each and every Settled Claim, release and
forever discharge, and shall forever be enjoined from prosecuting, any Settled
Claims against any of the Released Parties.

 

(b)           Upon
the Effective Date of this Settlement, each of the Defendants, on behalf of
themselves, their heirs, executors, administrators, predecessors, successors
and assigns, and the other Released Parties, shall release and forever
discharge each and every of the Settled Defendants’ Claims, and shall forever
be enjoined from prosecuting the Settled Defendants’ Claims against any of the
Lead Plaintiffs, any of the other named plaintiffs in these consolidated
actions and any of their attorneys.

 

(c)           Notwithstanding
the provisions of ¶¶ 3(a) and (b) herein, in the event that any of
the Released Parties asserts against either or both of the Lead Plaintiffs, any
of the other named plaintiffs in these consolidated actions or any of their
counsel, any claim that is a Settled Defendants’ Claim, then Lead Plaintiff(s),
such other named plaintiff(s) or counsel shall be entitled to use and
assert such factual matters included within the Settled Claims only against
such Released Party in defense of such claim but not for the purposes of
affirmatively asserting any claim against any Released Party.

 

 

THE SETTLEMENT CONSIDERATION

 

4.             In
consideration for the releases and discharges provided for in ¶ 3:

 

(a)          Within thirty (30) days of Preliminary Approval of the Settlement, Biovail shall pay and shall cause the insurers to pay their agreed
upon portions of the Settlement Amount, i.e., One Hundred Thirty-Eight
Million Dollars ($138,000,000.00) in cash, either by wire transfer or check, to
the Escrow Agent, as agent for the benefit of Lead Plaintiffs and the other
members of the Class.

 

(b)         In
addition, within six months after the Effective Date, Defendant Biovail will
adopt the corporate governance enhancements described in Section A of Exhibit C
to this Stipulation, and Defendant Biovail has agreed to maintain the corporate
governance enhancements described in Section B of Exhibit C.

 

5.             (a)           The Gross Settlement Fund, net of any
Taxes, shall be used to pay (i) the Notice and Administration Costs
referred to in ¶ 7 herein, (ii) the attorneys’ fee and expense award
referred to in ¶ 8 herein, and (iii) the remaining administration
expenses referred to in ¶ 9 herein. 
Additionally, Taxes shall be paid out of the Gross Settlement Fund,
shall be considered to be a cost of administration of the Settlement and shall
be timely paid by the Escrow Agent without prior Order of the Court.

 

(b)         The balance of the
Gross Settlement Fund after the above payments shall be the “Net Settlement
Fund.”  The Net Settlement Fund shall be
distributed to the Authorized Claimants as provided in ¶¶ 10-12 herein,
subject to the obligation, to the extent required by law, to withhold from any
distributions to Authorized Claimants and other persons entitled thereto
pursuant to this Stipulation any funds
necessary to pay Taxes including the establishment of adequate reserves for Taxes as well as any amount
that may be required to be withheld under

 

 

United States Treasury Reg. 1.468B-(l)(2) or
otherwise under applicable law in respect of such distributions. Further, the
Released Parties, Lead Plaintiffs  and
their respective counsel shall be indemnified and held harmless by the Escrow
Account up to the amount in the Escrow Account for Taxes (including, without
limitation, Taxes payable by reason of any such indemnification payments).  Any sums required to be held in escrow
hereunder shall be held by Bernstein Litowitz, acting as agent for the
Class.  All funds so held in the Escrow
Account shall be deemed to be in the custody of the Court for the benefit of
the Class and shall remain subject to the jurisdiction of the Court until
such time as the funds shall be distributed pursuant to this Stipulation and/or
further order of the Court or the Settlement is terminated as provided
herein.  The Escrow Agent shall invest
any funds held in escrow in short-term United States Agency or Treasury
Securities (or a mutual fund invested solely in such instruments), pursuant to
instructions from Bernstein Litowitz, acting as agent for the Class, and shall
collect and reinvest all interest accrued thereon.  The parties hereto agree that the Gross
Settlement Fund is intended to be a Qualified Settlement Fund within the
meaning of United States Treasury Regulation § 1.468B-1 and that
Plaintiffs’ Co-Lead Counsel, as administrators of the Gross Settlement Fund
within the meaning of United States Treasury Regulation §1.468B-2(k)(3), shall
be responsible for filing tax returns for the Gross Settlement Fund and paying
from the Gross Settlement Fund any Taxes owed with respect to the Gross
Settlement Fund.  The parties hereto
agree that the Gross Settlement Fund shall be treated as a Qualified Settlement
Fund from the earliest date possible, and agree to any relation-back election
required to treat the Gross Settlement Fund as a Qualified Settlement Fund from
the earliest date possible.   Counsel for
Defendants agree to provide promptly to the Escrow Agent the statement
described in United States Treasury Regulation § 1.468B-3(e).

 

 

ADMINISTRATION

 

6.             The
Claims Administrator shall administer the Settlement for the benefit of the
Class, subject to the jurisdiction of the Court.  Except as stated in ¶ 14 herein,
Defendants shall have no responsibility for the administration of the
Settlement and shall have no liability to the Class in connection with
such administration.  In particular, the
Defendants, Released Parties and their respective counsel have no
responsibility for or liability whatsoever with respect to (a) acts,
omissions or determinations of Plaintiffs’ Co-Lead Counsel, the Claims
Administrator or the Escrow Agent in connection with the administration of the
Gross Settlement Fund or otherwise; (b) the management, investment or
distribution of the Gross Settlement Fund; (c) losses suffered by or
fluctuations in the value of the Gross Settlement Fund; (d) payment or
withholding of any Taxes, expenses or costs incurred in connection with the
taxation of the Gross Settlement Fund or the filing of any related returns; (e) the
Plan of Allocation; or (f) the determination, administration, calculation
or payment of any claims asserted against the Gross Settlement Fund (with the
exception of providing the information referenced in the following
sentence).  Defendants’ Counsel shall
cooperate in the administration of the Settlement to the extent reasonably
necessary to effectuate its terms, including providing without charge all
information from Biovail’s transfer records concerning the identity of Class Members
and their transactions.

 

7.             Plaintiffs’
Co-Lead Counsel may pay up to $500,000 from the Settlement Amount, without
further order of the Court, for the reasonable costs and expenses associated
with identifying members of the Class and effecting mail Notice and
Publication Notice to the Class, and the administration of the Settlement,
including, but not limited to, the actual costs of publication, printing and
mailing the Notice, reimbursements to nominee owners for forwarding notice to
their beneficial owners, and the administrative expenses incurred and fees
charged by 

 

 

the Claims Administrator in connection with providing notice and
processing the submitted claims.

 

ATTORNEYS’
FEES AND EXPENSES

 

8.             As
part of their motion for final approval of the Settlement, Plaintiffs’ Co-Lead
Counsel will apply to the Court for an award from the Gross Settlement Fund of
attorneys’ fees and reimbursement of expenses, including the fees of any experts
or consultants incurred in connection with prosecuting the Action.  Such amounts as are awarded by the Court
shall be payable from the Gross Settlement Fund to Plaintiffs’ Co-Lead Counsel
immediately upon award, notwithstanding the existence of any timely filed
objections thereto, or potential for appeal therefrom, collateral attack on the
Settlement or any part thereof, subject to Plaintiffs’ Co-Lead Counsel’s joint
and several liability and obligation to make appropriate refunds or repayments
to the Gross Settlement Fund plus accrued interest at the same net rate as is
earned by the Gross Settlement Fund, if and when, as a result of any appeal
and/or further proceedings on remand, successful collateral attack, or for any
other reason, the Settlement is terminated or the fee or cost award is reduced
or reversed.  Such refunds or repayments
will be made within thirty (30) days of any appeal and/or further proceedings
on remand, or successful collateral attack, pursuant to which the Settlement is
terminated or the fee or cost award is reduced or reversed.  Plaintiffs’ Co-Lead Counsel shall allocate
the attorneys’ fees amongst Plaintiffs’ Counsel in a manner in which they in
good faith believe reflects the contributions of such counsel to the
prosecution and settlement of the Action with Defendants.  The Released Parties have no liability or
obligation to Lead Plaintiffs, the other members of the Class, or Plaintiffs’
Counsel, with respect to any attorneys’ fees, costs or expenses, other than the
obligation to pay 

 

 

or cause to be paid the Settlement Amount.  It is not a condition of this Settlement that
any particular attorneys’ fees, costs or expenses be awarded by the Court.

 

DISTRIBUTION TO AUTHORIZED
CLAIMANTS

 

9.             Plaintiffs’
Co-Lead Counsel will apply to the Court, on notice to Defendants’ Counsel, for
an order (the “Class Distribution Order”) approving the Claims
Administrator’s administrative determinations concerning the acceptance and
rejection of the claims submitted herein and approving any fees and expenses
not previously applied for, including the fees and expenses of the Claims
Administrator, and, if the Effective Date has occurred, directing payment of
the Net Settlement Fund to Authorized Claimants.

 

10.           The
Claims Administrator shall determine each Authorized Claimant’s pro rata share of the Net Settlement Fund based upon each
Authorized Claimant’s Recognized Claim (as defined in the Plan of Allocation
described in the Notice annexed hereto as Exhibit 1 to Exhibit A, or
in such other Plan of Allocation as the Court approves).

 

11.           The
Plan of Allocation proposed in the Notice is not a necessary term of this
Stipulation and it is not a condition of this Stipulation that any particular
Plan of Allocation be approved.

 

12.           Each
Authorized Claimant shall be allocated a pro rata share
of the Net Settlement Fund based on his, her or its Recognized Claim compared
to the total Recognized Claims of all accepted claimants.  This is not a claims-made settlement.  The entire Net Settlement Fund shall be
distributed to the Authorized Claimants. 
The Defendants shall not be entitled to get back any of the Gross
Settlement Fund and, prior to the Settlement becoming Final, shall be limited
to the termination provisions outlined in ¶ 25.  The Defendants shall have no involvement in
reviewing or challenging claims.

 

 

ADMINISTRATION OF THE
SETTLEMENT

 

13.           Any
member of the Class who does not submit a valid Proof of Claim will not be
entitled to receive any of the proceeds from the Net Settlement Fund but will
otherwise be bound by all of the terms of this Stipulation and the Settlement,
including the terms of the Judgment to be entered in the Action and the
releases provided for herein, and will be barred from bringing any action
against the Released Parties concerning the Settled Claims.

 

14.           The
Claims Administrator shall process the Proofs of Claim and, after entry of the Class Distribution
Order, distribute the Net Settlement Fund to the Authorized Claimants.  Except for their obligation to pay the
Settlement Amount as set forth in ¶ 4(a), and to cooperate in the production of
information with respect to the identification of Class Members from
Biovail’s shareholder transfer records, as provided herein, Defendants and
their insurers shall have no liability, obligation or responsibility for the
administration or disbursement of the Gross or Net Settlement Funds pursuant to
the Stipulation.  Plaintiffs’ Co-Lead
Counsel shall have the right, but not the obligation, to advise the Claims
Administrator to waive what Plaintiffs’ Co-Lead Counsel deem to be formal or
technical defects in any Proofs of Claim submitted in the interests of
achieving substantial justice.

 

15.           For
purposes of determining the extent, if any, to which a Class Member shall
be entitled to be treated as an “Authorized Claimant”, the following conditions
shall apply:

 

(a)           Each
Class Member shall be required to submit a Proof of Claim (see attached Exhibit 2 to Exhibit A), supported by
such documents as are designated therein, including proof of the transactions
claimed and the losses incurred thereon, or such other documents or proof as
Plaintiffs’ Co-Lead Counsel, in their discretion may deem acceptable;

 

 

(b)           All
Proofs of Claim must be submitted by the date specified in the Notice, unless
such period is extended by Order of the Court. 
Any Class Member who fails to submit a Proof of Claim by such date
shall be forever barred from receiving any payment pursuant to this Stipulation
(unless, by Order of the Court, a later submitted Proof of Claim by such Class Member
is approved), but shall in all other respects be bound by all of the terms of
this Stipulation and the Settlement, including the terms of the Judgment to be
entered in the Action and the releases provided for herein, and will be barred
from bringing any action against the Released Parties concerning the Settled
Claims.  Provided that it is received
before the motion for the Class Distribution Order is filed, a Proof of
Claim shall be deemed to have been submitted when posted, if received with a
postmark indicated on the envelope and if mailed by first-class mail and
addressed in accordance with the instructions thereon.  In all other cases, the Proof of Claim shall
be deemed to have been submitted when actually received by the Claims Administrator;

 

(c)           Each
Proof of Claim shall be submitted to and reviewed by the Claims Administrator,
who shall determine in accordance with this Stipulation and the approved Plan
of Allocation the extent, if any, to which each claim shall be allowed, subject
to review by the Court pursuant to subparagraph (e) below;

 

(d)           Proofs
of Claim that do not meet the submission requirements may be rejected.  Prior to rejection of a Proof of Claim, the
Claims Administrator shall communicate with the claimant in order to attempt to
remedy the curable deficiencies in the Proof of Claim submitted.  The Claims Administrator shall notify, in a
timely fashion and in writing, each claimant whose Proof of Claim it proposes
to reject in whole or in part, setting forth the reasons therefor, and shall
indicate in such notice that the claimant whose claim is to be rejected has the

 

 

right to a review by the Court if the claimant so desires and complies
with the requirements of subparagraph (e) below;

 

(e)           If
any claimant whose claim has been rejected in whole or in part desires to
contest such rejection, the claimant must, within twenty (20) days after the
date of mailing of the notice required in subparagraph (d) above, serve
upon the Claims Administrator a notice and statement of reasons indicating the
claimant’s grounds for contesting the rejection along with any supporting
documentation, and requesting a review thereof by the Court.  If a dispute concerning a claim cannot be
otherwise resolved, Plaintiffs’ Co-Lead Counsel shall thereafter present the
request for review to the Court; and

 

(f)            The
administrative determinations of the Claims Administrator accepting and
rejecting claims shall be presented to the Court, on notice to Defendants’
Counsel, for approval by the Court in the Class Distribution Order.

 

16.           Each
claimant shall be deemed to have submitted to the jurisdiction of the Court
with respect to the claimant’s claim, and the claim will be subject to
investigation and discovery under the Federal Rules of Civil Procedure,
provided that such investigation and discovery shall be limited to that
claimant’s status as a Class Member and the validity and amount of the
claimant’s claim.  No discovery shall be
allowed on the merits of the Action or Settlement in connection with processing
of the Proofs of Claim.

 

17.           Payment
pursuant to this Settlement shall be deemed final and conclusive against all Class Members.  All Class Members whose claims are not
approved by the Court shall be barred from participating in distributions from
the Net Settlement Fund, but otherwise shall be bound by all of the terms of
this Stipulation and the Settlement, including the terms of the

 

 

Judgment
to be entered in the Action and the releases provided for herein, and will be
barred from bringing any action against the Released Parties concerning the
Settled Claims.

 

18.           All
proceedings with respect to the administration, processing and determination of
claims described by ¶ 15 of this Stipulation and the determination of all
controversies relating thereto, including disputed questions of law and fact
with respect to the validity of claims, shall be subject to the jurisdiction of
the Court.

 

19.           The
Net Settlement Fund shall be distributed to Authorized Claimants by the Claims
Administrator after the Effective Date on notice to Defendants’ Counsel
pursuant to Order of the Court.

 

TERMS OF ORDER FOR
NOTICE AND HEARING

 

20.           Concurrently
with their application for preliminary Court approval of the Settlement
contemplated by this Stipulation, Plaintiffs’ Co-Lead Counsel and Defendants’
Counsel jointly shall apply to the Court for entry of an Order for Notice and
Hearing, substantially in the form annexed hereto as Exhibit A.

 

TERMS OF FINAL
JUDGMENT

 

21.           If
the Settlement contemplated by this Stipulation is approved by the Court,
counsel for the parties shall request that the Court enter a Judgment
substantially in the form annexed hereto as Exhibit B.

 

OPT-OUT TERMINATION RIGHT

 

22.           The
Defendants may terminate this Settlement if Class Members who in total
purchased in excess of ten percent (10%) of the shares of Biovail common stock
purchased during the Class Period exclude themselves from the Class.  In the event of a termination by the
Defendants, this Stipulation shall become null and void and of no further force
and effect and the provisions of ¶ 25 shall apply.  If the Defendants elect to terminate this
Settlement pursuant to 

 

 

this
paragraph written notice of such termination must be provided to Plaintiffs’
Co-Lead Counsel on or before seven (7) calendar days prior to the
Settlement Fairness Hearing.  Plaintiffs’
Co-Lead Counsel shall have the right to communicate with Class Members
regarding their decisions to opt-out.  If
a sufficient number of Class Members withdraw their requests for exclusion
such that the total number of remaining shares requesting exclusion falls below
the ten percent (10%) threshold noted above, Plaintiffs’ Co-Lead Counsel shall
so advise Defendants’ Counsel and any notice by Defendants of termination of
the Settlement shall automatically and immediately become null and void.

 

EFFECTIVE DATE OF
SETTLEMENT, WAIVER OR TERMINATION

 

23.           The
“Effective Date” of Settlement shall be the date when all the following shall
have occurred:

 

(a)           approval
by the Court of the Settlement, following notice to the Class and a
hearing, as prescribed by Rule 23 of the Federal Rules of Civil
Procedure; and

 

(b)           entry
by the Court of a Judgment, substantially in the form set forth in Exhibit B
annexed hereto, and the expiration of any time for appeal or review of such
Judgment, or, if any appeal is filed and not dismissed, after such Judgment is
upheld on appeal in all material respects and is no longer subject to review
upon appeal or review by writ of certiorari, or, in the event that the Court
enters a judgment in a form other than that provided above (“Alternative
Judgment”) and none of the parties hereto elect to terminate this Settlement,
the date that such Alternative Judgment becomes final and no longer subject to
appeal or review.

 

24.           Defendants
or Lead Plaintiffs shall have the right to terminate the Settlement and thereby
this Stipulation by providing written notice of their election to do so (“Termination
Notice”) to all other parties hereto within thirty (30) days of:  (a) the Court’s declining to enter 

 

 

the
Order for Notice and Hearing in any material respect; (b) the Court’s
refusal to approve this Settlement as set forth in this Stipulation or any
material part of it; (c) the Court’s declining to enter the Judgment in
any material respect; (d) the date upon which the Judgment is modified or
reversed in any material respect by the Court of Appeals or the Supreme Court;
or (e) the date upon which an Alternative Judgment is modified or reversed
in any material respect by the Court of Appeals or the Supreme Court.

 

25.           Except
as otherwise provided herein, in the event the Settlement is terminated, then
the parties to this Stipulation shall be restored to their respective status in
the Action as of December 7, 2007 and, except as otherwise expressly
provided, the parties shall proceed in all respects as if this Stipulation and
any related orders had not been entered. 
Furthermore, the Escrow Agent shall pay from the Escrow Account the sum
of (a) an amount equal to that portion of the Settlement Amount previously
paid by Biovail and the insurers to the Escrow Agent as agent for the Class;
and (b) an amount equal to any interest or other income earned thereon;
less the sum of (c) an amount equal to any Taxes paid or due with respect
to such income; and (d) an amount equal to costs of administration and
notice actually incurred and paid or payable from the Settlement Amount, to
Biovail or the insurers (as the case may be). 
For greater certainty, the amount to be paid to Biovail and each of the
insurers will be an amount equal to the sum of each payor’s pro-rata share of (a) and
(b) in the preceding sentence, less each payor’s pro-rata share of (c) in
the preceding sentence.  The amount in (d) shall
be treated as a defense cost to be deducted from the payment due to the insurer
then responsible for paying or advancing defense costs.  Such payments will be made within thirty (30)
days of termination.  It shall be
Defendants’ responsibility to timely notify the Escrow Agent what the pro-rata
share of each payor was and which insurer’s payment is to be reduced by the
amount in (d).

 

 

NO ADMISSION OF
WRONGDOING

 

26.           This
Stipulation, whether or not consummated or terminated, and any proceedings
taken pursuant to it:

 

(a)           shall
not be offered or received against any of the Defendants as evidence of or
construed as or deemed to be evidence of any presumption, concession, or
admission by any of the Defendants with respect to the truth of any fact
alleged by any of the Plaintiffs or the validity of any claim that has been or
could have been asserted in the Action or in any litigation, or the deficiency
of any defense that has been or could have been asserted in the Action or in
any litigation, or of any liability, negligence, fault, or wrongdoing of any of
the Defendants;

 

(b)           shall
not be offered or received against any of the Defendants as evidence of a
presumption, concession or admission of any fault, misrepresentation or
omission with respect to any statement or written document approved or made by
any of the Defendants;

 

(c)           shall
not be offered or received against any of the Defendants as evidence of a
presumption, concession or admission with respect to any liability, negligence,
fault or wrongdoing, or in any way referred to for any other reason as against
any of the Defendants, in any other civil, criminal or administrative action or
proceeding, other than such proceedings as may be necessary to effectuate the
provisions of this Stipulation; provided, however, that if this Stipulation is
approved by the Court, the Defendants may refer to it to effectuate the
liability protection granted them hereunder;

 

(d)           shall
not be construed against any of the Defendants as an admission or concession
that the consideration to be given hereunder represents the amount which could
be or would have been recovered after trial; and

 

 

(e)           shall
not be construed as or received in evidence as an admission, concession or
presumption against Lead Plaintiffs or any of the other Class Members that
any of their claims are without merit, or that any defenses asserted by the
Defendants have any merit, or that damages recoverable under the Complaint
would not have exceeded the Gross Settlement Fund.

 

MISCELLANEOUS
PROVISIONS

 

27.           All
of the exhibits attached hereto are hereby incorporated by reference as though
fully set forth herein.

 

28.           Each
Defendant contributing to the Settlement Amount warrants as to himself or itself
that, as to the payments made by or on behalf of him or it to the Settlement
Amount, at the time of such payment that the Defendant made or caused to be
made pursuant to ¶ 4 above, he or it was not insolvent, nor will the
payment required to be made by or on behalf of him or it render such Defendant
insolvent, within the meaning of and/or for the purposes of the United States
Bankruptcy Code, including §§ 101 and 547 thereof.  This warranty is made by each such Defendant
and not by such Defendant’s Counsel.

 

29.           If
a case is commenced in respect of any Defendant contributing the Settlement
Amount (or any insurer contributing funds to the Settlement Amount on behalf of
any Defendant) under Title 11 of the United States Code (Bankruptcy), or a
trustee, receiver, conservator, or other fiduciary is appointed under any
similar law, and in the event of the entry of a final order of a court of
competent jurisdiction determining the transfer of money to the Gross
Settlement Fund or any portion thereof by or on behalf of such Defendant to be
a preference, voidable transfer, fraudulent transfer or similar transaction and
any portion thereof is required to be returned and is in fact returned to such
bankrupt Defendant or to the insurer who 

 

 

contributed
the funds to the Settlement Amount on behalf of the Bankrupt Defendant, and
such amount is not promptly deposited to the Gross Settlement Fund by others,
then, at the election of Plaintiffs’ Co-Lead Counsel, the parties shall jointly
move the Court to vacate and set aside the releases given and Judgment entered
in favor of the Defendants pursuant to this Stipulation, which releases and
Judgment shall be null and void, and the parties shall be restored to their
respective positions in the litigation as of December 7, 2007 and an
amount equal to the amount computed in ¶ 25 above, less any amount already
in fact returned to the bankrupt Defendant or to the insurer who contributed
the funds to the Settlement Amount on behalf of the Bankrupt Defendant, shall
be paid to Biovail or the insurers (as the case may be).

 

30.           The
parties to this Stipulation intend the Settlement to be a final and complete
resolution of all disputes asserted or which could be asserted by the Class Members
against the Released Parties with respect to the Settled Claims.  Accordingly, Lead Plaintiffs and Defendants
agree not to make any disparaging remarks about each other in any public
statements concerning this litigation or the Settlement of this litigation and
Lead Plaintiffs and Defendants agree they will not assert in any forum that the
litigation was brought by Plaintiffs or defended by Defendants in bad faith or
without a reasonable basis.  The parties
hereto shall assert no claims of any violation of Rule 11 of the Federal Rules of
Civil Procedure relating to the prosecution, defense, or settlement of the
Action.  The parties agree that the
amount paid and the other terms of the Settlement were negotiated at arm’s-length
in good faith by the parties, and reflect a settlement that was reached voluntarily
after consultation with experienced legal counsel.

 

31.           This
Stipulation may not be modified or amended, nor may any of its provisions be
waived except by a writing signed by all parties hereto or their
successors-in-interest.

 

 

32.           The
headings herein are used for the purpose of convenience only and are not meant
to have legal effect.

 

33.           The
administration and consummation of the Settlement as embodied in this
Stipulation shall be under the authority of the Court, and the Court shall
retain jurisdiction for the purpose of entering orders providing for awards of
attorneys’ fees and expenses to Plaintiffs’ Co-Lead Counsel and enforcing the
terms of this Stipulation.

 

34.           The
waiver by one party of any breach of this Stipulation by any other party shall
not be deemed a waiver of any other prior or subsequent breach of this
Stipulation.

 

35.           This
Stipulation and its exhibits constitute the entire agreement among the parties
hereto concerning the Settlement of the Action, and no representations, warranties,
or inducements have been made by any party hereto concerning this Stipulation
and its exhibits other than those contained and memorialized in such documents.

 

36.           This
Stipulation may be executed in one or more counterparts.  All executed counterparts and each of them
shall be deemed to be one and the same instrument.

 

37.           This
Stipulation shall be binding upon, and inure to the benefit of, the successors
and assigns of the parties hereto.

 

38.           The
construction, interpretation, operation, effect and validity of this
Stipulation, and all documents necessary to effectuate it, shall be governed by
the internal laws of the State of New York without regard to conflicts of laws,
except to the extent that federal law requires that federal law governs.

 

39.           No
opinion or advice concerning the tax consequences of the proposed Settlement to
individual Class Members is being given or will be given by Plaintiffs’
Co-Lead Counsel or counsel for the Defendants; nor is any representation or
warranty in this regard made by virtue of 

 

 

this
Stipulation.  Each Class Member’s
tax obligations, and the determination thereof, are the sole responsibility of
the Class Member, and it is understood that the tax consequences may vary
depending on the particular circumstances of each individual Class Member.

 

40.           This
Stipulation shall not be construed more strictly against one party than another
merely by virtue of the fact that it, or any part of it, may have been prepared
by counsel for one of the parties, it being recognized that it is the result of
arm’s-length negotiations between the parties and all parties have contributed
substantially and materially to the preparation of this Stipulation.

 

41.           All
counsel and any other person executing this Stipulation and any of the exhibits
hereto, or any related settlement documents, warrant and represent that they
have the full authority to do so and that they have the authority to take
appropriate action required or permitted to be taken pursuant to the
Stipulation to effectuate its terms.

 

42.           Plaintiffs’
Co-Lead Counsel and Defendants’ Counsel agree to cooperate fully with one
another in seeking Court approval of the Order for Notice and Hearing, the
Stipulation

 

 

and
the Settlement, and to promptly agree upon and execute all such other
documentation as may be reasonably required to obtain final approval by the
Court of the Settlement.

 

Dated:    April 4, 2008

 

 

	
  BERNSTEIN LITOWITZ BERGER &
  GROSSMANN LLP 

  	
   

  	
  MILBERG
  LLP 

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:
  

  	
  Sanford
  P. Dumain (SD-8712)

  
	
  By:
  

  	
  Max
  W. Berger (MB-5010)

  	
   

  	
   

  	
  Kent
  A. Bronson (KB-4906)

  
	
   

  	
  Steven
  B. Singer (SS-5212)

  	
   

  	
   

  	
  Joshua
  E. Keller (JK-4882)

  
	
   

  	
  Rochelle
  Feder Hansen (RH-7061)

  	
   

  	
  One
  Penn Plaza

  
	
  1285
  Avenue of the Americas

  	
   

  	
  New
  York, New York 10119

  
	
  New
  York, New York 10019

  	
   

  	
  Tel:
  212-594-5300

  
	
  Tel:
  212-554-1400

  	
   

  	
  Fax:
  212-868-1229

  
	
  Fax:
  212-554-1444

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Co-Lead
  Counsel and Counsel for Co-Lead Plaintiff Ontario Teachers’ Pension Plan
  Board

  	
   

  	
  Co-Lead
  Counsel and Counsel for Co-Lead Plaintiff Local 282 Welfare Trust Fund

  
	
   

  	
   

  	
   

  
	
  HOWREY
  LLP 

  	
   

  	
  CURTIS,
  MALLET-PREVOST, COLT & MOSLE LLP 

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:
  

  	
  Mark
  D. Wegener, Esq. (pro hac vice)

  	
   

  	
  By:
  

  	
  Peter
  Fleming, Jr., Esq. (PEF-1354)

  
	
   

  	
  Martin
  F. Cunniff, Esq. (pro hac vice)

  	
   

  	
   

  	
  T.
  Barry Kingham, Esq. (TBK-1219)

  
	
   

  	
  Andrew
  D. Lazerow, Esq. (pro hac vice)

  	
   

  	
  101
  Park Avenue

  
	
  1299
  Pennsylvania Ave., N.W.

  	
   

  	
  New
  York, New York 10178

  
	
  Washington,
  D.C. 20004

  	
   

  	
  Tel.:
  212-696-6000

  
	
  Tel:
  202-783-0800

  	
   

  	
  Fax:
  212-697-1559

  
	
  Fax:
  202-383-6610

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Co-Counsel
  for Defendants

  	
   

  	
  Co-Counsel
  for DefendantsExhibit 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”).

 

4

 

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.

 

12

 

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”.  

 

14

 

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

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