NVLN Novelion Therapeutics Inc

Item 11.   Executive Compensation

Compensation Discussion and Analysis

The Compensation Committee administers the compensation policies and programs for QLT’s named executive officers. A summary discussion of the 2015 named executive officer compensation actions taken by the Compensation Committee follows in this Compensation Discussion and Analysis report. Our named executive officers for 2015 are as follows:

·                   Sukhi Jagpal, Former Chief Financial Officer

At QLT’s 2015 annual general meeting (“2015 AGM”), its shareholders approved by 90%, in a non-binding advisory vote, the compensation of the Company’s named executive officers as disclosed in the Company’s proxy statement for its 2015 AGM. In the prior year at QLT’s 2014 annual general meeting (“2014 AGM”), its shareholders approved by 96%, in a non-binding advisory vote, the compensation of the Company’s named executive officers as disclosed in the Company’s proxy statement for its 2014 AGM. As the 2015 AGM did not occur until January 2016, the Compensation Committee considered the 2014 shareholder advisory vote in setting 2015 executive compensation.  The Compensation Committee will consider the 2015 shareholder advisory vote in setting 2016 executive compensation.

Objectives of Our Compensation Program

The Compensation Committee evaluates and sets executive compensation consistent with our stated philosophy to provide a compensation package that attracts, retains and motivates executives and rewards business successes that have the potential to increase shareholder value. More specifically, the Compensation Committee seeks to:

·                   provide a total compensation program that is competitive with other companies in the pharmaceutical and biotechnology industries with which we compete for executive talent;

·                   place a significant portion of executive compensation at risk by linking cash incentive compensation to the achievement of pre-established corporate financial and operational performance objectives and other individual key objectives within the executive’s area of responsibility and by using equity as a key component of our compensation program;

·                   provide long-term incentive compensation that focuses executives’ efforts on building shareholder value by aligning their interests with those of our shareholders; and

·                   promote stability and retention of our management team.

Consistent with our performance-based philosophy, a significant portion of potential compensation is based upon performance and equity-based programs. These programs include awards that are based on our operational and financial performance and provide compensation in the form of cash, and equity-based incentive awards that are tied to both our short-term and long-term performance and achievement of goals. The performance-based bonus program rewards short-term performance; while our equity awards, coupled with our stock ownership guidelines, reward long-term performance and align the interests of management with those of our shareholders.

Compensation Philosophy

We are engaged in a highly specialized and competitive industry. Success in this environment requires talented and motivated executives. The goal of our named executive officer compensation program is to attract, retain and motivate executives and reward business successes that have the potential to increase shareholder value. The Compensation Committee, which is composed of independent members of the Board, is responsible for implementing our executive compensation program and establishing corporate performance objectives and reviewing individual performance objectives that reward our named executive officers when those objectives are met. In considering executive compensation, the Compensation Committee strives to ensure that our total compensation program is competitive within the industry in which we operate, supports our overall strategy and objectives, reflects both risk and reward for our named executive officers and aligns our executive officers’ interests with those of our shareholders. The combination of base salary, annual incentives and long-term incentives that we provide to our named executive officers is designed to accomplish this.

The Compensation Committee obtains information from a number of sources, including North American surveys and reports on executive compensation in the biotechnology industry, as well as internally generated reports of executive compensation practices of a sub-group of biotechnology companies of similar size and market capitalization. To assist with its evaluation of executive compensation, the Compensation Committee has the authority to retain independent compensation consultants. The Compensation Committee has engaged Radford, an Aon Hewitt Company (“Radford”), to provide independent director and executive compensation assessments and recommendations to the Compensation Committee. Radford provides data on the compensation and relative performance of peer companies, provides opinions on the degree to which our compensation arrangements are consistent with market practices and our objectives, consults on other compensation matters as needed and, if

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applicable, recommends compensation guidelines and provides suggestions on program design. Additionally, a representative from Radford attends Compensation Committee meetings when requested by the Compensation Committee.

Compensation Governance and Advisors

We are committed to having strong governance standards with respect to our compensation programs, procedures and practices. The Compensation Committee has, among other things, retained Radford, an independent compensation consultant, which reports directly to the Compensation Committee. Our Compensation Committee has assessed the independence of Radford and has concluded that no conflict of interest exists with respect to the services that Radford performs for our Compensation Committee. Radford did not provide any services to the Company other than with respect to the services provided to the Compensation Committee as described below. Radford also informed the Compensation Committee that it was not aware of any conflict of interest with respect to the services that it provides to our Compensation Committee and the services that it provides to other clients.

Components of the Compensation Package

The Compensation Committee supports the core principle that there should be both consequences for underperformance and incentives for outstanding performance. This is achieved through the design of a compensation program in which both fixed and variable components comprise the “pay mix” for each executive officer.

There are three major elements to our executive compensation:

·                   Base salary;

·                  Variable performance-based compensation, consisting of annual cash bonuses based on an assessment of individual and corporate performance to pre-set goals and objectives; and

·                   Long-term incentives, consisting of annual grants of long-term stock options.

In addition, our executives are eligible to participate in the benefit plans generally available to all of our employees (as described in Health and Life Benefits below).

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Determining Compensation

Compensation Consultant and Peer Group. In November 2014 and September 2015, the Compensation Committee engaged Radford to provide market data and a comprehensive executive compensation assessment intended to help inform our Compensation Committee in establishing 2015 executive compensation. Specifically, in November 2014, the Compensation Committee engaged Radford to assist our Compensation Committee in establishing 2014 equity grants in connection with the Company’s annual general meeting of shareholders held on December 15, 2014 and director and executive compensation for 2015.

The following 19 public companies located in North America comprised our November 2014 peer group (the “November 2014 Peer Group”) and were considered comparable to QLT based on size (less than 100 employees), market capitalization (generally between $100 and $600 million), and stage of product pipelines (phase I/II development stage companies):

In September 2015, the Compensation Committee engaged Radford to update our peer group and assist our Compensation Committee in evaluating our 2015 executive compensation and director compensation programs, including equity awards. The following 22 public companies located in North America comprised our September 2015 peer group (the “September 2015 Peer Group”) and were considered comparable to QLT based on size (less than 100 employees), market capitalization (generally between $75 and $500 million), and stage of product pipelines (pre-commercial phase II/III):

Base Salary

Annual base salary is designed to provide a competitive fixed rate of pay recognizing different levels of responsibility and performance within QLT. Actual salaries reflect the Compensation Committee’s consideration of numerous factors, including the individual named executive officer’s experience, length of service, position criticality, scope of responsibilities, leadership skills and performance. In determining whether to increase the base salary for a particular executive officer, the Compensation Committee considers a variety of factors, including the results of each executive

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officer’s individual goal achievement and overall performance, comparative survey data, along with the other elements of compensation received by our executive officers.

Principal Executive Officer

Effective October 23, 2014, Dr. Geoffrey Cox assumed the position of “Principal Executive Officer” upon his appointment to Interim Chief Executive Officer. Dr. Cox receives an annual base salary. For 2015, Dr. Cox was not awarded a cash incentive opportunity under our cash incentive compensation program in connection with his role as Interim Chief Executive Officer given the expected short term nature of the role.

Annual Cash Incentive Compensation

The Compensation Committee’s compensation philosophy for 2015 (other than with respect to Dr. Cox as Interim Chief Executive Officer) included a pay-at-risk component under the annual cash incentive compensation program. The annual cash incentive award represents income at risk — it is only paid if and to the extent certain goals and objectives are met. The annual cash incentive compensation award that each executive officer is eligible to receive is based on a pre-determined target percentage of his or her base salary, determined in accordance with market data and taking into account the scope and level of responsibility of each executive. The Compensation Committee also believes that the success of QLT is based, in part, on the achievements of the executive officers as a group and, therefore, the target annual award percentage is determined by considering competitive rates of incentive compensation for the executive officers as a group and not just on a position-specific basis.

When combined with base salaries, cash incentive awards are intended to provide the opportunity for an executive officer to achieve total cash compensation, when targeted levels of performance are achieved or exceeded, that is competitive with total compensation paid by other companies that have similar profiles and circumstances. QLT defines “total cash compensation” as base salary plus annual target bonus under its annual cash incentive compensation program. The Compensation Committee believes that, given the competitive industry, this pay-for-performance compensation strategy allows a biotechnology company of QLT’s position and size to competitively attract and retain talented executives while aligning the strategic interests of its executives and shareholders.

In connection with executive officer promotions, following a review of the September 2015 Peer Group and each executive officer’s scope and level of responsibility within QLT, and in an effort to maintain internal parity, on November 5, 2015, the Board, upon recommendation of the Compensation Committee, adjusted the target annual award percentage for its Senior Vice Presidents and its Chief Financial Officer from 35% to 40% of base salary.

The amount of annual cash incentive compensation that our executive officers were eligible to receive for 2015 was as follows:

The Board, following the recommendation of the Compensation Committee, determined that executive officers could generally attain between 0% and 100% of corporate and individual goals depending on their performance, with the potential to attain up to 125% under exceptional circumstances.

Cash Retention Bonus Program

Maintaining a strong, focused executive team is critical to the Company’s continued progress. In December 2014, the Board determined that the Company’s annual incentive awards were insufficient to achieve this objective and that, given the significant headcount reductions that had occurred over the course of the recent prior years, the Company was at-risk with respect to competition for, and potential departures of, key executive officers.

Accordingly, in December 2014, the Board, following consultation with Radford and upon the recommendation of the Compensation Committee, approved the following one-time cash retention bonuses to its executive officers, other than Dr. Cox and Mr. Jagpal, to retain these individuals: Mr. Ibbott - 36% of base salary (C$100,000), Ms. Assaly - 50% of base salary (C$131,200) and Dr. Janes - 50% of base salary (C$131,400). In reaching this decision, the Board determined that modest cash retention bonuses would be more effective in achieving the goal of retaining key executives in the near-term than equity awards, which vest over a longer period and are of uncertain value. The Board also determined that the continued employment of these executives was critical to the Company’s success going forward.

Cash retention payments were payable in January 2016, if the executive officer was an active employee of the Company up to December 31, 2015, or upon the executive officer’s departure, if the Company terminated the executive officer’s employment without cause prior to December 31, 2015. In addition, cash retention payments were prorated if the executive officer was on a leave during the bonus period for any reason except approved vacation. See 2015 Summary Compensation Table below.

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Officer Promotions and Annual Cash Compensation Review

In connection with the appointment of Dr. Cox to Interim Chief Executive Officer in October 2014, the Compensation Committee engaged Radford to provide market data and assist in determining compensation for Dr. Cox that was competitive and consistent with best practices. Due to the fact that Dr. Cox’s role as Interim CEO was considered short term at the time, the Compensation Committee did not request Radford to provide a formal report to the Compensation Committee or update the Company’s relevant peer group at that time.  In 2015, Dr. Cox’s base salary was determined to fall near the 25 th  percentile of the September 2015 Peer Group.  Given the continued interim nature of the appointment, the Board did not adjust Dr. Cox’s cash compensation in 2015. Dr. Cox was not eligible to participate in the annual cash incentive compensation program.

Mr. Ibbott was appointed as Interim Chief Financial Officer of the Company on January 26, 2015.  According to the November 2014 Peer Group, Mr. Ibbott’s base salary was positioned below the 25th percentile and his target annual award percentage was positioned at the 50th percentile for comparable positions.  In approving Mr. Ibbott’s total cash compensation for 2015, the Board, upon the recommendation of the Compensation Committee, considered many factors, including the other components of Mr. Ibbott’s total compensation package, the importance of the position for the Company and the interim nature of the appointment.

On November 5, 2015, Mr. Ibbott was promoted to Senior Vice President, Finance and Chief Financial Officer of the Company. In connection with his promotion, the Board, following the recommendation of the Compensation Committee, increased Mr. Ibbott’s salary from CAD$275,000 (US $214,995) to CAD$300,000 (US $234,540) and increased his target annual award percentage from 35% to 40% of his base salary. Mr. Ibbott’s increases put his total cash compensation below the 25th percentile of the Company’s September 2015 Peer Group for total cash compensation due to the decline in value of the Canadian dollar as compared to the US dollar.

On November 5, 2015, Ms. Assaly was appointed as Senior Vice President, Legal; Corporate Secretary. In connection with her promotion, the Board, following the recommendation of the Compensation Committee, increased Ms. Assaly’s salary from CAD$262,444 (US $205,179) to CAD$300,000 (US $234,540) and increased her target annual award percentage from 35% to 40% of her base salary. Ms. Assaly’s increases put her total cash compensation below the 25th percentile of the Company’s September 2015 Peer Group for total cash compensation due to the decline in value of the Canadian dollar as compared to the US dollar.

On November 5, 2015, Dr. Janes was appointed as Senior Vice President, Intellectual Property and Technology Development; Chief Patent Officer. In connection with her promotion, the Board, following the recommendation of the Compensation Committee, increased Dr. Janes’ salary from CAD$262,795 (US $205,453) to CAD$300,000 (US $234,540) and increased her target annual award percentage from 35% to 40% of her base salary. Dr. Janes’ increases put her total cash compensation below the 25th percentile of the Company’s September 2015 Peer Group for total cash compensation due to the decline in value of the Canadian dollar as compared to the US dollar.

For more information, refer to the Employment Agreements, Post-Employment Compensation and Change in Control Arrangements section below.

Establishing Goals

Individual Goals. Each year, the criteria for assessing an individual named executive officer’s performance are developed and reviewed by the Compensation Committee in consultation with the particular named executive officer. The individual goals are primarily objective and measurable, relate to the individual named executive officer’s area of responsibility and are designed to facilitate the achievement of our corporate goals.

Corporate Goals. Each year, the criteria for assessing QLT’s performance are: (i) developed by the Interim Chief Executive Officer in consultation with management, (ii) reviewed and approved by the Compensation Committee, (iii) approved by the Board, and (iv) communicated to the participants. In early 2015, on the recommendation of the Compensation Committee, the Board approved specific corporate goals for QLT to achieve. The 2015 corporate goals were qualitative rather than financial in nature given the fact that QLT’s product pipeline is in the pre-commercial phase of development. QLT’s corporate goals are described below and are weighted from 0-100% in relative allocation. As noted above, for 2015, the Board, following the recommendation of the Compensation Committee, determined that executive officers could generally attain between 0% and 100% of corporate and individual goals depending on their performance, with the potential to attain up to 125% for individual goals under exceptional circumstances.

The following is a description of the 2015 corporate goals:

·                   Strategic Transactions: 35% - Analyze, support and complete a review of strategic alternatives, and support and execute any strategic transaction as determined by the Board.

·                 Operational Activities: 25% - Review and modify facilities and certain operations consistent with strategic goals, determinations and outcomes.

·                   Synthetic Retinoid Program: 40% - Achieve specific milestones related to the regulatory and clinical development progress for QLT091001, the Company’s synthetic retinoid, including evaluating the opportunity for conditional approval with the European Medicines Agency (“EMA”), completing development studies, regulatory meetings and submissions, and conducting preparation activities for the initiation of a pivotal trial for QLT091001.

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2015 Corporate Goal Achievement

In determining goal achievement, the Interim Chief Executive Officer presents a recommendation to the Compensation Committee for performance bonuses based on the results achieved as compared to targets established for a particular fiscal year. The Compensation Committee has the discretion to award bonuses that correspond to that level of achievement, or to modify the award payable if it believes a modification would be in the best interests of QLT and its shareholders. In performing its assessment, the Compensation Committee may also consider market, business or organizational factors that may have impacted achievement of a specific goal.

In early 2016, the Compensation Committee considered the performance of QLT relative to the corporate objectives set in early 2015. Based on the assessment of QLT’s performance and achievements against the corporate goals, the Board, upon recommendation of the Compensation Committee, determined that QLT achieved 86.75% of its 2015 corporate objectives. The following chart illustrates the weighting and level of achievement of each of the 2015 corporate goals:

In evaluating QLT’s performance against the goals established for 2015, and determining the extent to which those goals were successfully achieved, the Compensation Committee considered the following factors, among others:

·                   Strategic Transactions: The following was achieved in 2015:

Following a comprehensive review of strategic alternatives, on June 8, 2015, the Company entered into an Agreement and Plan of Merger (as amended, the “InSite Merger Agreement”) among QLT, InSite Vision Incorporated, a Delaware corporation (“InSite”), and Isotope Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of QLT. InSite is an ophthalmic product development company advancing products to address unmet eye care needs. Under the terms of the InSite Merger Agreement, InSite would have become an indirect wholly owned subsidiary of QLT, and InSite stockholders would have received QLT common shares based on an exchange ratio equal to 0.078 of a QLT common share per share of InSite common stock, subject to a collar mechanism (the “InSite Merger”).

On September 15, 2015, the InSite Merger Agreement was terminated after InSite notified QLT that its board of directors had determined that a second unsolicited offer (as amended, the “Sun Proposal”) from Sun Pharmaceuticals Industries Ltd. (“Sun”) was superior to the proposed InSite Merger with QLT. The Sun Proposal was an all-cash offer to acquire InSite for $0.35 per share of InSite common stock. As a result, InSite notified QLT that it was exercising its right to terminate the InSite Merger Agreement in order to enter into an agreement with Sun, and InSite paid QLT a termination fee of $2.7 million.

Concurrent with the execution of the InSite Merger Agreement, on June 8, 2015 the Company entered into a Share Subscription Agreement (as amended) with other co-investors, providing for an investment of $45 million into common shares (“Aralez Shares”) of Aralez Pharmaceuticals Inc., newly formed by the business combination of Tribute Pharmaceuticals Canada Inc. and POZEN Inc. (the “Aralez Merger”), at a purchase price per share equal to: (a) the lesser of (i) US$7.20, and (ii) a five percent (5%) discount off the five day volume weighted average price per share of POZEN common stock calculated over the five trading days immediately preceding the date of closing of the Aralez Merger, not to be less than US$6.25 per share; multiplied by (b) the Aralez Merger exchange ratio of 0.1455. As announced on June 8, 2015, the Company intended to acquire the Aralez Shares in order to distribute the Aralez Shares to its shareholders as a special distribution (the “Special Distribution”).  The Company’s shareholders were also given the opportunity to receive, in lieu of their pro rata entitlement to Aralez Shares, cash up to a maximum aggregate amount of $15 million.  In order to fund the $15 million cash component, on June 8, 2015 the Company entered into a backstop agreement (as amended, the “Backstop Agreement”) with each of the following (the “Backstop Purchasers”): Broadfin Healthcare Master Fund Ltd., JW Partners, LP and JW Opportunities Master Fund Ltd..  Pursuant to the Backstop Agreement, the Backstop Purchasers agreed to acquire up to $15 million of Aralez Shares from the Company at the same price paid by the Company for the Aralez Shares.

On February 5, 2016, the Aralez Merger was consummated and QLT acquired 7,200,000 Aralez Shares at a price of US$6.25 per share for a total investment of $45 million.  On March 17, 2016, the Company completed the sale of 2,400,000 Aralez Shares to the Backstop Purchasers for total cash consideration of $15 million in order to fund the cash component of the Special Distribution. The Company completed the Special Distribution of the remaining Aralez Shares and $15 million in cash in lieu of Aralez Shares to the QLT Shareholders on April 5, 2016 by way of a reorganization of share capital, which permitted a tax efficient return of capital to shareholders.

In addition, concurrent with the execution of the InSite Merger Agreement, on June 8, 2015 the Company entered into a Share Purchase and Registration Rights Agreement (as amended) with certain third parties pursuant to which such third parties agreed to acquire an aggregate of 10,695,187 common shares of QLT at a purchase price of $1.87 per QLT common share (the “Private Placement”) following completion of the other transactions announced on June 8, 2015, including the Special Distribution. As a result of the termination of the InSite Merger Agreement and the Board’s determination that the Company’s current cash requirements do not justify the dilution that would have been caused by the Private Placement, the Company elected to terminate the Private Placement on April 28, 2016.

The Compensation Committee assigned 35% of the 2015 corporate goals to the Strategic Transactions goal. In determining the extent to

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which we met this goal, the Compensation Committee acknowledged the extensive efforts undertaken by management to complete an exhaustive review of strategic alternatives, which ultimately resulted in the signing of multiple transactions that were designed to create significant liquidity and create near and long term value for the QLT shareholders.  The Compensation Committee acknowledged that the distribution of Aralez Shares to QLT shareholders provides shareholders with the opportunity to participate in the growth of a newly formed commercial-stage specialty pharmaceutical company, and together with the $15 million cash in lieu of Aralez Shares, resulted in a tax efficient return of capital to the QLT shareholders. The Compensation Committee also noted that the termination of the InSite Merger resulted from the Sun Proposal, an event beyond management’s control, and consequently determined that, in recognition of management’s efforts towards these transactions, QLT achieved 31.50% out of the targeted 35% with respect to this goal.

·                   Operational Activities: The following objectives were achieved in 2015:

·                   Reviewed organizational needs and executed plan to meet QLT’s future strategic and operational objectives.

·                   Executed transition to new facility.

·                Developed and executed on a plan to transition analytical laboratory functions to external contract research organizations by September 30, 2015.

The Compensation Committee assigned 25% of the 2015 corporate goals to the Operational Activities goal. Given that we achieved the three most value-enhancing operational objectives, despite the fact that we did not favorably resolve our dispute with Valeant Pharmaceuticals International, Inc. pertaining to the Qcellus™ laser, the Compensation Committee determined that we achieved 21.25% out of the targeted 25% with respect to this goal.

·                   Synthetic Retinoid Program: The following principal clinical and regulatory development objectives to advance QLT’s synthetic retinoid program were achieved in 2015:

·                   Met with European Union regulatory authorities to evaluate the opportunity for conditional approval with the EMA.

·                   Completed process development studies to enable production of primary stability batches.

·                   Advanced start-up activities and manufactured drug product in order to progress QLT091001 toward pivotal trial.

·                   Commenced QLT’s natural history study of visual function in subjects with certain inherited retinal diseases.

The Compensation Committee assigned 40% of the 2015 corporate goals to the Synthetic Retinoid Program goal. As we deferred the reapplication to the FDA for breakthrough therapy designation until after the completion of the natural history study and did not complete all clinical trial activities required to initiate a pivotal trial in Q1 2016, the Compensation Committee determined that we achieved 34% out of the targeted 40% with respect to this goal.

2015 Individual Goal Achievement and Total Cash Incentive Compensation. The extent to which individual goals have been achieved or exceeded is determined largely from the annual performance recommendations for each of the other named executive officers prepared by the Interim Chief Executive Officer, and recommended by the Compensation Committee to the Board for approval.

Senior Vice President, Finance and Chief Financial Officer. In 2015, individual goals were established for Mr. Ibbott including goals related to (i) supporting potential strategic activities, (ii) effectively managing financial reporting and internal controls, and (iii) executing the transition to a new facility. Mr. Ibbott was assessed as having met or exceeded each of these goals, to achieve, overall by percentage, 115% of his individual goals for 2015.

Based upon the achievement of the corporate goals and his individual goals, and the relative weighting between them, Mr. Ibbott was awarded a cash incentive compensation amount for 2015 equal to CAD $92,784 (USD $72,539), which represented approximately 33% of his actual base salary for 2015.

Senior Vice President, Intellectual Property and Technology Development; Chief Patent Officer. In 2015, individual goals were established for Dr. Janes including goals related to (i) assisting and advising on intellectual property, regulatory and scientific related aspects of various strategic alternatives, (ii) developing and overseeing the execution of a plan to transition internal analytical laboratory functions and facilities to external contract research organizations, (iii) advancing and strengthening QLT’s intellectual property portfolio, and (iv) supporting development activities to further advance the synthetic retinoid program. Commencing in October 2015, Dr. Janes’ R&D responsibilities were expanded to include managing and providing oversight of clinical operations and all other R&D functions. Dr. Janes was assessed as having met or exceeded each of these goals in addition to her expanded R&D responsibilities, to achieve, overall by percentage, 125% of her individual goals for 2015.

Based upon the achievement of the corporate goals and her individual goals, and the relative weighting between them, Dr. Janes was awarded a cash incentive compensation amount for 2015 equal to CAD $92,801 (USD $72,552), which represented approximately 35% of her actual base salary for 2015.

Senior Vice President, Legal; Corporate Secretary. In 2015, individual goals were established for Ms. Assaly including goals related to (i) supporting potential strategic activities, (ii) ensuring the preparation, review, approval and filing of continuous disclosure documents, (iii) overseeing all operational legal matters and managing legal risk, (iv) providing effective and efficient Board and Committee Secretary services, and (v) supporting the Compensation Committee’s annual review of director and executive compensation and the review of the employee equity program. Ms. Assaly was assessed as having met or exceeded each of these goals, to achieve, overall by percentage, 115% of her individual goals for 2015.

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Based upon the achievement of the corporate goals and her individual goals, and the relative weighting between them, Ms. Assaly was awarded a cash incentive compensation amount for 2015 equal to CAD $90,295 (USD $70,593), which represented approximately 34% of her actual base salary for 2015.

Equity Awards

Consistent with our compensation philosophy of attracting, retaining and motivating our named executive officers to deliver sustainable long-term value, equity compensation typically represents a significant portion of named executive officer total compensation at QLT. The amount and type of equity awards are intended to align QLT’s named executive officers’ interests with shareholder interests by rewarding our named executive officers for driving sustained increases in the value of the Company’s common shares. These equity-based awards also serve as a retention incentive. In setting the equity compensation levels of the executive officers (other than Dr. Cox), the Compensation Committee considers numerous factors, including market data, prior grants of stock options to the executive officer, the level of responsibility and expected future contributions of the executive officer, the performance of the named executive officer in the year, the total cash compensation level of the executive officer, the fair value of long-term incentives awarded to executives in similar positions in a comparator group, and the ability of stock options to retain named executive officers.

QLT currently maintains one equity compensation plan, the QLT 2000 Incentive Stock Plan (as amended and restated, the “2000 Plan”), which provides for the issuance of stock options to directors, officers, employees and key consultants of QLT and its affiliates. Option grants are meant to directly link executive compensation to value creation for shareholders, and the amount (if any) each executive ultimately realizes from the options depends solely on the increase in value of common shares from the date of grant through the date of exercise. The 2000 Plan also provides for the issuance of restricted stock units (“RSUs”).

The 2000 Plan is administered by the Compensation Committee. The Compensation Committee or the Board of Directors (upon the recommendation of the Compensation Committee) is authorized to grant equity awards. Generally, except in the case of awards for new hires and specific circumstances described below, equity awards are decided once a year at a regularly scheduled meeting approximate to the annual general meeting of shareholders.  Under the 2000 Plan, awards are deemed to be granted on the date that the Compensation Committee or the Board of Directors, as applicable, authorizes the grant or such later date as may be determined by the Compensation Committee or the Board of Directors, as applicable, at the time that the grant is authorized. All awards are granted after the market close on the date of grant and the exercise price of stock options will not be less than the closing price on the TSX on the date of grant. RSUs may be granted pursuant to the 2000 Plan with no consideration from the participant. RSUs are generally subject to vesting conditions, including continued employment. The Board of Directors did not grant any RSUs to employees during 2015.

Except as described below, all currently outstanding options granted to QLT’s executive officers are exercisable for a term of ten years and vest in 36 equal monthly installments. In QLT’s view, monthly vesting over three years facilitates retention while also providing a program that is consistent with market practices to attract and retain talent. In addition, in the event of a change of control, there is no automatic acceleration of options, however, the Board of Directors may, in its discretion, accelerate the vesting of all or a portion of any unvested options. These terms provide executives with certain financial incentives that enhance the Company’s ability to attract and retain key employees.

Upon his appointment as Interim Chief Executive Officer, on October 29, 2014 Dr. Cox was awarded, upon recommendation by the Compensation Committee, 150,000 stock options. Unlike other options granted to QLT’s executive officers, these options vested in six monthly installments in order to immediately align Dr. Cox’s interests with those of the shareholders, and to incentivize near-term stock price performance during his tenure. The options will expire, if unexercised, on the 90 th  day after the cessation of his service as an employee and director of QLT.

In December 2014, the Board of Directors, upon the recommendation of the Compensation Committee and following consultation with Radford, approved stock option grants to most of QLT’s employees to enhance motivation and retention in light of the Company’s reduced size, streamlined operations and the termination of a Merger Agreement that had been executed between the Company and Auxilium Pharmaceuticals Inc. in September 2014.  Ms. Assaly and Dr. Janes (prior to their promotions to named executive officer positions in November 2015) were each granted 100,000 stock options, exercisable for ten years and vesting in 36 equal monthly installments.

Upon his appointment in January 2015, Mr. Ibbott was awarded, upon recommendation by the Compensation Committee, 100,000 stock options.  According to Radford, Mr. Ibbott’s new hire stock option grant was below the 25th percentile of the November 2014 Peer Group, which reflected at that time the interim nature of his appointment.

In June 2015, in connection with the execution of the InSite Merger Agreement and the investment in and subsequent distribution of the Aralez Shares as described above under 2015 Corporate Goal Achievement , the Board authorized the immediate accelerated vesting of all issued and outstanding stock options and RSUs, including the stock options and RSUs held by named executive officers and directors. This was intended to allow all grantees the opportunity to participate in the Company’s special election distribution of the Aralez Shares and also to account for the decrease in the Company’s share price that was anticipated to occur as a result, thereby rendering all outstanding stock options “out-of-the money”.

Other than the new hire stock option grant to Mr. Ibbott in January 2015 described above, stock options and other equity grants that may otherwise have been awarded to executive officers and other employees in 2015 were deferred due to the Company’s special election distribution of the Aralez Shares that was pending throughout 2015 and the decrease in the Company’s share price that was anticipated to occur as a result.

In accordance with historical annual practice, upon recommendation of the Compensation Committee, on November 4, 2015 the Board approved awards of 100,000 stock options to each of the executive officers, including Dr. Cox, subject to certain future events and conditions.  These grants are not reflected in the 2015 Summary Compensation Table or the Grants of Plan Based Awards table below as they have not yet been awarded.

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Minimum Share Ownership Guidelines for Executive Officers.

To further align our executives’ financial interests with those of our shareholders, the Board, on the recommendation of the Compensation Committee, has approved share ownership guidelines for executive officers, encouraging share ownership as follows within five years after the later of (i) the date the executive officer is hired; and (ii) the date the executive officer assumes a new position as an executive officer:

·                   Chief Executive Officer: an amount equal to 1.5 times the CEO’s annual base salary; and

·                   Other executive officers: an amount equal to 0.5 times the executive officer’s annual base salary.

The value of QLT “in-the-money” vested stock options held by the executive is counted towards fulfilling the share ownership guidelines. The value of the shares owned for the purposes of fulfilling the share ownership guidelines is determined as the greater of the acquisition cost or the market value at the time of the determination. Compliance with the share ownership guidelines is evaluated on an annual basis by the Corporate Governance and Nominating Committee. Assuming that Dr. Cox serves as Interim CEO for a short term period until the appointment of a permanent Chief Executive Officer, he will not be required to fulfill the share ownership guidelines set for the Chief Executive Officer. Given the appointment of Mr. Ibbott, Ms. Assaly and Dr. Janes as executive officers in 2015, they are not yet required to meet the guidelines.

Health and Life Benefits

Our named executive officers receive medical, dental, life insurance and other benefits generally made available to all of our employees.

Registered Retirement Savings Plan (RRSP) Matching Program

Our named executive officers resident in Canada are eligible, along with all other QLT employees resident in Canada, to participate in our registered retirement savings plan (“RRSP”) matching program. Under this program, we match the amount contributed by the named executive officer into his or her RRSP annually (or into QLT’s group RRSP Plan) up to 50% of the annual maximum amount allowable by the Canada Revenue Agency, less any applicable tax withholdings.

Tax and Accounting Consideration

The Board and the Compensation Committee generally consider the financial accounting and tax implications of their named executive officer compensation decisions. While QLT is not generally subject to tax in the United States, when applicable, the Compensation Committee and the Board will consider the potential future effects of Section 162(m) of the Internal Revenue Code on the compensation paid to our named executive officers. Section 162(m) disallows a tax deduction for any publicly-held corporation for individual compensation exceeding $1.0 million in any taxable year for the CEO and each of the other named executive officers (other than the Chief Financial Officer), unless compensation is performance-based. The Compensation Committee, where it determines that Section 162(m) is applicable and it is reasonably practicable, will seek to qualify the variable compensation paid to our named executive officers for an exemption from the deductibility limitations of Section 162(m).

Compensation Committee Report

The Compensation Committee has discussed and reviewed with management the Compensation Discussion and Analysis presented in this Annual Report on Form 10-K. Based on such review and discussions, the Compensation Committee has recommended to the Board that the Compensation Discussion and Analysis be included in this Annual Report on Form 10-K.

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Compensation of Executive Officers

Where our executive officers are paid in Canadian dollars, their compensation has been translated into U.S. dollars for reporting purposes in the tables below.

2015 Summary Compensation Table

The following table summarizes total compensation earned by QLT’s named executive officers for 2015, 2014 and 2013. With the exception of Dr. Cox, who receives a portion of his salary in U.S. dollars, all other salary amounts in the table below were paid in Canadian dollars and have been converted into U.S. dollars for reporting purposes.

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Outstanding Equity Awards at 2015 Fiscal Year-End

The following table provides information as at December 31, 2015 related to unexercised options, stock that has not vested, and outstanding equity incentive plan awards for named executive officers.

2015 Option Exercises and Stock Vested

The following table provides information with respect to vested stock awards and option exercises during 2015 by named executive officers.

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Pension Benefits and Nonqualified Deferred Compensation

We do not have any pension plans or nonqualified deferred compensation plans for our named executive officers.

Employment Agreements, Post-Employment Compensation and Change in Control Arrangements

We have entered into the agreements summarized below with our named executive officers.

Employment Agreement with Dr. Geoffrey F. Cox. On October 23, 2014, Dr. Cox entered into a six-month employment agreement with QLT to serve as the Company’s Interim Chief Executive Officer, which was extended for additional six month periods on April 21, 2015, October 8, 2015 and April 7, 2016. Dr. Cox is entitled to receive a base salary of US$40,000 per month, health-related benefits, paid vacation, and expense reimbursement in accordance with Company policies. Under the terms of Dr. Cox’s employment agreement, QLT is required to provide him with a tax equalization payment if the resulting Canadian taxes associated with his employment by QLT exceed the U.S. tax he would have been required to pay had his employment been entirely performed in the State of Massachusetts.  In connection with his appointment, on October 29, 2014 QLT granted Dr. Cox options to purchase 150,000 common shares of QLT at an exercise price of C$4.47 (being the closing price of QLT’s common shares on the TSX on the date of the grant). These options vested over 6 months and have a ten year term. On June 29, 2015, Dr. Cox exercised 60,000 of these stock options and was issued 60,000 common shares, leaving 90,000 stock options outstanding and vested as at December 31, 2015. If during his employment term Dr. Cox is either terminated without cause or there is a change of control followed by the termination of his employment, then any unvested portion of stock options he holds at that time will vest immediately.  Following his termination, all vested and unexercised options will be exercisable for 90 days following the later of his termination date and the date that Dr. Cox ceases to be an employee and director of QLT. In accordance with the amendment entered into on October 8, 2015, the Company also agreed, subject to Board approval, to grant Dr. Cox up to an additional 150,000 stock options subject to certain terms and conditions. In the event that QLT terminates the employment of Dr. Cox prior to the end of his employment term, other than for cause, he will be entitled to receive the lesser of two months of base salary and the base salary for the balance of his employment term. Following termination of employment, Dr. Cox will be bound by non-competition and non-solicitation terms, which prohibit him from participating in a competitive business or soliciting QLT’s customers or employees for a period of nine months following the termination of his employment with QLT. Dr. Cox does not receive director fees for Board service during the term of his employment.

Employment Agreement with W. Glen Ibbott. On January 5, 2015, Mr. Ibbott entered into an employment agreement with QLT to assume the position of Vice President, Finance and Interim Chief Financial Officer. Based on the terms of his employment agreement with QLT (as amended on November 5, 2015),  Mr. Ibbott is entitled to base salary, cash incentive compensation under QLT’s cash incentive compensation plan, participation in the 2000 Plan, and other health-related benefits and registered retirement savings plan employer matching contributions. On November 5, 2015, Mr. Ibbott’s employment was amended to reflect (a) his promotion to Senior Vice President, Finance and Chief Financial Officer, (b) a base salary increase from C$275,000 (US $214,995) to C$300,000 (US $234,540), and (c) an increase in his target bonus percentage from 35% to 40% of his base salary. In the event that QLT terminates the employment of Mr. Ibbott without cause, his employment agreement provides that he is entitled to (a) notice or pay in lieu of notice equal to six months of base salary, plus one additional month of base salary for each completed year of service (to a maximum of 12 months in total), (b) payment of bonus earned to the date of termination as if all corporate and individual goals for that year were achieved but not exceeded, (c)  continuation of health benefits with the exception of short-term disability, long-term disability and out of country travel coverage, for 30 days after his last active day of employment provided that such continuation is approved by QLT’s insurance provider, thereafter, compensation will be in the amount of 10% of base salary for the balance of the severance period, and (d) a prorated RRSP payment for the portion of the current calendar year worked plus the length of the severance period. On January 31, 2016, Mr. Ibbott received a C$100,000 (US $78,180) retention bonus in accordance with the terms of his employment agreement. Following termination of employment, Mr. Ibbott is bound by the terms of a non-competition and non-solicitation agreement, which prohibits him from participating in a competitive business or soliciting QLT’s customers or employees for a period of one year following the termination of his employment.

Employment Agreement with Dori C. Assaly. On June 14, 2013, Ms. Assaly entered into an employment agreement with QLT to assume the position of Vice President, Legal Affairs and Corporate Secretary. Based on the terms of the employment agreement, Ms. Assaly is entitled to base salary, cash incentive compensation under QLT’s cash incentive compensation plan, participation in the 2000 Plan, and other health-related benefits and registered retirement savings plan employer matching contributions. On November 5, 2015, Ms. Assaly’s employment was amended to reflect (a) her promotion to Senior Vice President, Legal and Corporate Secretary, (b) a base salary increase from C$262,444 (US $205,179) to C$300,000 (US $234,540), and (c) an increase in her target bonus percentage from 35% to 40% of her base salary. In the event that QLT terminates the employment of Ms. Assaly without cause, the employment agreement provides that she is entitled to (a) 12 months’ notice or at the election of Ms. Assaly, pay in lieu of notice equivalent to 12 months’ base salary, (b) payment of bonus earned to the date of termination as if all corporate and individual goals for that year were achieved but not exceeded, (c) continuation of health benefits with the exception of short-term disability, long-term disability and out of country travel coverage, for 30 days after her last active day of employment provided that such continuation is approved by QLT’s insurance provider, thereafter, compensation will be in the amount of 10% of base salary for the balance of the severance period, (d) a prorated  RRSP payment for the portion of the current calendar year worked plus the length of the severance period, and (e) payment for outplacement counselling services to assist her in seeking alternative employment.  On January 31, 2016, Ms. Assaly received a C$121,117 (US

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$95,471) retention bonus in accordance with the terms of the letter agreement entered into with QLT on January 9, 2015.  Following termination of employment, Ms. Assaly is bound by the terms of a non-competition and non-solicitation agreement, which prohibits her from participating in a competitive business or soliciting QLT’s customers or employees for a period of one year following the termination of her employment.

Employment Agreement with Dr. Lana E. Janes. On January 1, 2010, Dr. Janes entered into an employment agreement with QLT to assume the position of Vice President, Intellectual Property and Chief Patent Officer. Based on the terms of the employment agreement, Dr. Janes is entitled to base salary, cash incentive compensation under QLT’s cash incentive compensation plan, participation in the 2000 Plan, and other health-related benefits and registered retirement savings plan employer matching contributions. On November 5, 2015, Dr. Janes’ employment was amended to reflect (a) her promotion to Senior Vice President, Intellectual Property and Technology Development, and Chief Patent Officer, (b) a base salary increase from C$262,795 (US $205,453) to C$300,000 (US $234,540), and (c) an increase in her target bonus percentage from 35% to 40% of her base salary. In the event that QLT terminates the employment of Dr. Janes without cause, the employment agreement provides that she is entitled to, subject to a duty to mitigate, (a) notice or pay in lieu of notice equal to nine months of base salary, plus one additional month of base salary for each complete year of service (to a maximum of 24 months in total), (b) payment of bonus earned to the date of termination as if all corporate and individual goals for that year were achieved but not exceeded, (c) continuation of health benefits with the exception of short-term disability, long-term disability and out of country travel coverage, for 30 days after the last active day of employment provided that such continuation is approved by QLT’s insurance provider, thereafter, compensation will be in the amount of 10% of base salary for the balance of the severance period, (d) a prorated RRSP payment  for the portion of the current calendar year worked, and (e) payment for outplacement counselling services to assist her in seeking alternative employment. Dr. Janes’ duty to mitigate does not apply in the event she executes and delivers to QLT within 30 days after termination a release in the form prescribed in her employment agreement. On January 31, 2016, Dr. Janes received a C$131,400 (US $102,728) retention bonus in accordance with the terms of the letter agreement entered into with QLT on January 9, 2015.  Following termination of employment, Dr. Janes is bound by the terms of a non-competition and non-solicitation agreement, which prohibits her from participating in a competitive business or soliciting QLT’s customers or employees for a period of one year following the termination of her employment.

Employment Agreement with Sukhi Jagpal.   On November 5, 2012, Mr. Jagpal entered into an amended and restated employment agreement with QLT, which was further amended on February 27, 2013. Based on the terms of the employment agreement (as amended), Mr. Jagpal was entitled to the following compensation during this employment with QLT: base salary, cash incentive compensation under QLT’s cash incentive compensation plan, participation in the 2000 Plan, and other health-related benefits and registered retirement savings plan employer matching contributions.

On November 26, 2014, Mr. Jagpal resigned from service as Chief Financial Officer of QLT and his employment ceased on January 26, 2015. On January 30, 2015 he received certain severance and termination benefits in accordance with the terms of his employment agreement, which are summarized below.

Following termination of employment, Mr. Jagpal continues to be bound by the terms of a non-competition and non-solicitation agreement, which prohibits him from participating in a competitive business or soliciting QLT’s customers or employees for a period of two years following the termination of his employment.

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Stock Options.   Stock options that have been awarded to an executive officer are governed by the terms of the stock option agreements entered into between QLT and its executive officers, which provide:

·                   In the event of retirement, unless otherwise determined by the Compensation Committee, (i) if the executive officer has worked with QLT for at least 20 years, or (ii) is at least 60 years of age and has worked continuously on behalf of QLT for at least five years, then all of his previously unvested stock options will vest, and all stock options will remain exercisable until the expiration date of the stock options. In the event of retirement where neither (i) or (ii) above is applicable, and the retiree has received the consent of the Compensation Committee, then the retiree’s stock options will immediately vest and will terminate upon the earlier of (a) 90 days following the retirement date, or (b) the expiration date of the stock option.

·                   In the event of death or termination due to disability, all previously unvested stock options of the executive officer will vest, and all stock options will remain exercisable until the earlier of (a) twelve months following the date of death or termination due to disability of the named executive officer, or (b) the expiration date of the stock option.

·                   In the event of a termination of the executive officer’s employment other than for cause, all vested stock options will remain exercisable until the earlier of (a) 90 days following his termination of service, or (b) the expiration date of the stock option.

With the exception of stock options granted to Dr. Cox on October 29, 2014 which provide for automatic acceleration upon termination without cause following a change of control, any accelerated vesting of stock options granted to executive officers following a change of control will be at the QLT Board of Directors’ discretion.

Change of Control Agreements . Prior to the Company’s 2012 annual general meeting, the Company entered into separate change of control agreements with each of its named executive officers and executive officers at the time, including Dr. Janes. Other than Dr. Janes, none of the Company’s current named executive officers is a party to a change of control agreement.

Dr. Janes’ 2011 Change of Control Agreement contains a “double-trigger” change of control severance provision, such that the change of control does not, by itself, trigger the severance entitlements. The 2011 Change of Control Agreement provides that, in the event of termination by QLT of Dr. Janes’ employment without cause or by Dr. Janes after a triggering event (as the terms “cause” and “triggering event” are defined in the agreement) within a period of 24 months following a change of control of QLT, she will receive a severance payment equal to 18 months’ base salary, the maximum RRSP matching contribution to which Dr. Janes would otherwise be entitled during the severance period, amounts in lieu of certain other health and retirement benefits for the severance period, relocation expenses, outplacement counselling and an annual cash incentive compensation entitlement calculated at the target cash incentive compensation entitlement that would otherwise have been paid during the severance period. For more information, refer to the Employment Agreements, Post-Employment Compensation and Change in Control Arrangements—Letter Agreement with Dr. Lana Janes section above.

A change of control includes an event in which any person acquires 35% or more of the voting securities of QLT, the sale of all or substantially all of the assets of QLT (other than to an affiliate of QLT or to an entity in which our shareholders held 65% of the voting securities prior to the sale), a merger or other reorganization involving QLT in which the original shareholders of QLT own less than 65% of the resulting merged entity, or a change in the majority of the directors on the Board in any consecutive 24 month period or less such that a majority of the Board members ceases to comprise individuals who either have been (a) Board members continuously since the beginning of such period, or (b) appointed or nominated for election as Board members during such period by at least a majority of the Board members described in subsection (a) above who were still in office at the time the Board approved such appointment or nomination.

Potential Payments upon Termination or Change in Control .

The amount of compensation payable to our named executive officers in the event of a termination of employment or a change of control is set forth in the tables below. The amounts in the tables below were calculated assuming the termination of the named executive officer’s employment occurred as of December 31, 2015.

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