Biovail, Eugene Melnyk reach proxy settlement

TORONTO, May 26 (Reuters) - Biovail Corp (BVF.TO) reached an agreement with its founder Eugene Melnyk that will likely avoid another proxy battle that disrupted its shareholder meeting a year ago.

Canada's biggest publicly traded drug company said late on Monday that Melnyk, the company's largest shareholder, agreed to vote in favor of the company's nominees to the board. Melnyk also promised not to participate in a proxy battle or make a shareholder proposal at any time until the completion of Biovail's shareholders' meeting in 2010.

Melnyk, who was trying to appoint two handpicked people to the board, will also withdraw his proposed nominees to the board.

In exchange, the company agreed to appoint Frank Potter, one of Melnyk's choices, to the company's board and audit committee.

"We are very pleased that we can now move forward and focus on the continued successful implementation of our New Strategic Focus through next year's AGM," Douglas Squires, chairman of the board, said in a release.

Neither the company nor Melnyk was available for further comment.

Earlier this year, Melnyk called for a special shareholders' meeting to vote on two board nominees backed by him and changes to the company's governance.

Melnyk, who stepped down as executive chairman in 2007, was seeking a vote on resolutions that he said would bring the company's corporate practice in line with recommendations from the Canadian Coalition of Good Governance.

The company and Melnyk, who holds about 12 percent of the outstanding shares, have battled for more than a year over the strategic direction of the company.

Melnyk, the millionaire owner of the Ottawa Senators National Hockey League team and a string of racehorses, has opposed the company's plan to shift to new treatments for disorders of the central nervous system.

At last year's meeting he pulled his own block of about 18.8 million shares in advance of the 2008 annual meeting in an attempt to have it postponed so that he could build more support for his directors and business plan.

He had proposed a new emphasis on the company's product pipeline, including a return to "difficult to manufacture" generic drugs, as well as acquiring more products and technologies.

This forced a summer of legal wrangling that was not resolved until early August.

Earlier this year, Melnyk agreed to pay $1 million in a settlement of a case with U.S. Securities and Exchange Commission over the drugmaker's accounting practices. A hearing resumes late next month with Canada's top regulator to settle allegations over the biotech company's accounting and disclosure practices dating back to 2001.

Three other former executives have already settled with the OSC. ($1=$1.13 Canadian) (Reporting by Scott Anderson, editing by Dave Zimmerman)