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Novartis AG (NYSE: NVS) announced that the Novartis Board of Directors and Dr. Daniel Vasella have agreed to cancel his non-compete agreement with Novartis and all related conditional compensation. The agreement was to take effect after Dr. Vasella steps down as Chairman of the Board at the Novartis Annual General Meeting on February 22, 2013.
Intended to protect the company, the non-compete required that Dr. Vasella refrain from making his knowledge and know-how available to competitors who may take advantage of his experience with the company. Dr. Vasella knows the company’s business intimately, having built the leading R&D organization and personally recruited most of the top executives. In return, the non-compete provided for an annual payout of up to CHF 12 million for six years, for a maximum total payout to Dr. Vasella of CHF 72 million, assuming all conditions were met. Dr. Vasella previously expressed his intention to make available the net amount received under the non-compete for philanthropic activities.
“The Board and Dr. Vasella agreed to cancel the non-compete agreement and to forgo all compensation linked to his non-compete,” said current Vice Chairman Prof. Dr. Ulrich Lehner, who will serve as Chairman ad interim until the designated Chairman is elected and assumes office on August 1, 2013. “We continue to believe in the value of a non-compete, however, we believe the decision to cancel the agreement and all related compensation addresses the concerns of shareholders and other stakeholders. The board understands the importance of full transparency and will strengthen its efforts in this regard.”
In light of recent events and especially in view of safeguarding the company’s interests, Dr. Vasella said, “I have understood that many people in Switzerland find the amount of the compensation linked to the non-compete agreement unreasonably high, despite the fact I had announced my intention to make the net amount available for philanthropic activities. That is why the Board and I have agreed that I will forgo all payments linked to the non-compete and to cancel the agreement.”
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