Howard Solomon, Chairman, Chief Executive Officer and President
of Forest Laboratories, Inc. (NYSE: FRX), today sent the following
letter to Carl C. Icahn:
July 9, 2012
Via Federal Express
Mr. Carl Icahn Icahn Capital LP 767 Fifth Avenue, 47th Floor New
York, New York 10153
Dear Carl:
We have consistently said that we were open to constructive
discussions with you regarding how to build value for all of our
shareholders. However, you have never made an effort to engage with
us outside the context of a proxy contest – and your discourse thus
far has shown a striking lack of strategic ideas. Instead, it has
been replete with wild and baseless accusations, innuendo and
distortion of the facts. It is truly unfortunate that you have seen
fit to conduct yourself in such a manner, but as you have continued
to do so publicly, I feel compelled to set the record straight.
Stock Sales
As you know, I have spent more than thirty-five years of my
career at Forest. Like most similarly situated executives, a
significant portion of my compensation has been equity-based, which
has always aligned my interests with those of the Company’s
shareholders. Our tremendous long term success resulted in a
multi-billion dollar appreciation in Forest’s market value and also
caused the major part of my net worth to be based in Forest
shares.
I find it ironic that I would have to debate publicly with a man
of your age and financial sophistication the need to consider
issues of asset diversification and estate planning. For these
purposes, and to support various charitable causes that are
important to me, I sold Forest stock and certain options between
2003 and 2007. However, contrary to your assertion during your CNBC
interview on July 2nd, the vast majority of my sales were not made
at $70 or “pretty close to the top” – in fact 87% of the sales
occurred over a three and one-half year period at significantly
lower prices.
Each of these dispositions was approved by our legal counsel,
was made during acceptable trading windows, and was fully and
properly disclosed to the markets through either SEC filings, press
releases or both. Not only were my stock sales done for estate
planning reasons - and disclosed in a press release as such - all
of the sales to which you refer took place prior to or during 2007,
more than five years before Lexapro went off patent in 2012. My
only stock dispositions since 2007 have been made for charitable
giving purposes and to pay the purchase price on options, as well
as taxes associated with new option exercises and the vesting of
restricted stock, with all of the other underlying shares retained
by me.
Finally, your allegation that these transactions, which took
place between five and one-half and almost nine years ago, had
anything to do with inside knowledge regarding Lexapro's 2012
patent expiration is offensive, absurd, and made with no basis
whatsoever. Patent expirations are a fact of life in the
pharmaceutical industry. I would have hoped, Carl, that even you
would be willing to acknowledge the plainly obvious fact that the
timing of the expiration of Lexapro’s patent – as well as our
efforts to offset its impact – had been fully disclosed and well
known to the investment community for many years.
Make no mistake – I continue to own a significant position in
Forest through both direct share ownership and options. Under
Forest’s Stock Ownership Guidelines, the Chief Executive Officer is
required to hold shares with a value equal to at least six times
his or her annual base salary. The current value of my shares is
well in excess of that benchmark. My substantial equity position
means that my interests are aligned with those of the entire
shareholder base, and reflects my confidence that Forest's business
plan will continue to build optimal shareholder value for many,
many years.
My Compensation
Our executive compensation program is designed to align
executive compensation with our shareholders’ interests. As you
know, aside from your votes, over 80% of our shareholders voting
supported the Company’s compensation plan at last year’s annual
meeting.
My compensation is overseen by our Compensation Committee, which
is comprised of four independent directors – Dan L. Goldwasser,
Chairman, Christopher J. Coughlin, Gerald M. Lieberman, and Brenton
L. Saunders – who have directly retained an independent
compensation consultant to assist them in designing and
establishing our executive compensation programs. My compensation
is benchmarked against the Company’s peers and in line with that of
CEOs of comparable companies. In addition, supported by data and
insight provided by our consultant, we recently restructured our
compensation programs to enhance our practice of aligning pay with
performance and to provide even greater transparency with respect
to how we implement our pay for performance philosophy.
Succession Planning
As the eighty-four year old Chairman and CEO of a thriving
pharmaceutical company, I understand fully the market’s and
Forest’s shareholders’ interest and natural concern that surrounds
the duration of my tenure and my ultimate successor. Our succession
planning is being led by independent directors, who have directly
engaged Spencer Stuart to assist with, among other things, the
consideration of both our deep bench of internal candidates and
external candidates. I am confident that the Forest Board is fully
capable of making responsible and objective succession planning
decisions.
Obviously, Forest is not able to name my successor before the
Board makes that decision, and like most companies, we are not
inclined to disclose a succession plan prior to its implementation.
But all Forest shareholders can be assured that there is indeed an
appropriate and objective succession planning process being led by
directors with outstanding qualifications, unquestioned integrity
and independence.
David Solomon
I did not anticipate that my son David would be publicly
disparaged and caricatured by someone utterly ignorant of even the
slightest information about his qualifications or performance.
When David first expressed interest in joining Forest, I
cautioned him that as an employee of Forest Laboratories, being my
son was a disadvantage rather than an advantage, and that he would
have to work twice as hard as his peers to dispel the perception of
favoritism and to be accepted as an equal – and that if he was not
prepared to accept that burden he should not join Forest. You may
have cautioned your son Brett in a similar way when he joined your
company.
Naturally, I am as proud of my sons’ accomplishments as I am
sure you are of your children’s accomplishments. Before joining
Forest, David graduated summa cum laude from Yale College with a
B.S. in Biology and received a J.D. from Yale Law School, where he
was a Senior Editor of the Yale Law Journal. He practiced law for
several years at a major international law firm, Paul, Weiss,
Rifkind, Wharton & Garrison LLP.
Like your son Brett, David also worked in the film industry and
gained significant corporate and entrepreneurial experience during
his time in the film business, including time as Director of
Creative Affairs at Paramount Pictures, where he oversaw the
development and production of feature films, as well as an
independent producer with Davis Entertainment, based at 20th
Century Fox.
During his more than eleven-year tenure at Forest Laboratories,
David’s work, particularly as Senior Vice President Corporate
Development and Strategic Planning, has greatly contributed to our
strong product position today. We have a more robust pipeline than
ever before in our history, developed during the period that David
had responsibility for Business Development. We have an outstanding
track record for bringing new products to market while managing our
expenses judiciously; and, we have vigorously protected our
intellectual property.
But while I take personal pride in David’s accomplishments, both
outside of and inside Forest, I am the CEO of a public company that
has a strong, independent Board of Directors that has the final say
on succession issues. I note that you chose to elevate your son
Brett – following his “movie making” career – not only to executive
positions within your organization, but also to positions of
responsibility to shareholders as a director of public companies
such as Cadus Corporation (where Brett took your seat as Chairman),
American Railcar Industries, Motricity Inc., Hain Celestrian Group
and Take-Two Interactive Software, among others. In certain of
those situations, it appears to have been within your discretion
because of your controlling stock position.
In contrast, at Forest our succession process is firmly in the
hands of our independent directors and their advisors. David will
neither be favored nor handicapped because of his relationship with
me. The qualifications of our sons should speak for themselves. I
will not interfere with the succession planning process being
conducted by our independent directors, and will recuse myself from
any final decisions that are made to find a successor CEO, if David
is being considered for that role.
Accelerated Share Repurchase Program (ASR)
Structured share repurchase transactions such as ASRs allow
companies to return cash to shareholders quickly and have less
exposure to market conditions and greater certainty into the number
of shares retired for a given notional amount than do open market
share repurchase programs. Far from being “peculiar” as you claim,
structured repurchase transactions are increasingly common, and the
volume of these transactions increased 42% in 2011 year over year.
In fact, these transactions have been executed over the last two
years by notable S&P 500 companies such as Johnson &
Johnson, Home Depot, Express Scripts, Northrop Grumman, Adobe, Dr.
Pepper Snapple, and Kohls, as well as by Genzyme, a company where
Icahn nominees, including Eric Ende, were on the Board.
During June and August 2011, Forest entered into two separate
Accelerated Share Repurchase transactions with Morgan Stanley as an
efficient way of returning $850MM in capital to its shareholders.
In connection with the ASR contracts, Morgan Stanley delivered to
Forest an aggregate of 21.5 million shares during 2011 and Forest
expects to receive an additional 2.9 million shares during July,
2012, at the conclusion of the ASR contracts, for a total
repurchase of 24.4 million shares.
The shares delivered by Morgan Stanley are retired by Forest
upon receipt. Any shares held by Morgan Stanley as a hedge related
to the ASRs are owned exclusively by Morgan Stanley. Forest has
absolutely no control over, or agreements with, Morgan Stanley as
it relates to voting any shares Morgan Stanley may own. Therefore,
the Company categorically denies any allegations made in the June
18, 2012 letter that the shares of Forest that Morgan Stanley may
own are under the control of Forest management.
Board Composition
As you know Carl, Forest’s Board represents a balance of
continuing leadership and new perspectives, including five new
independent directors in the last six years. Just last year, our
shareholders elected three new highly experienced independent
directors to our Board – Christopher J. Coughlin, Gerald M.
Lieberman, and Brenton L. Saunders – adding financial acumen,
operational skills, investor perspective and corporate governance
leadership. These directors did not just join our Board in a token
role; they have taken extremely active roles in our corporate
governance, with Messrs. Coughlin and Lieberman chairing the Audit
and Nominating and Governance Committees, respectively. All three
new directors elected in 2011 serve on two Board committees, with
all three serving on the Compensation Committee. In addition, they
are all leading the succession process I mentioned above, together
with the independent directors of our Board. These new directors
complement the medical expertise we added with Dr. Peter J.
Zimetbaum in 2009 and with Dr. Nesli J. Basgoz and in 2006. Dr.
Basgoz and Dr. Zimetbaum each serve on both the Board’s Compliance
Committee and the Board’s Nominating and Governance Committee.
Taken together, our ten 2012 Board nominees have diverse and
complementary backgrounds spanning a wide range of disciplines,
including medicine, law, accounting, business and finance.
Importantly, we also have experts in therapeutic areas that are
critical to our business, such as infectious diseases, arthritis,
diabetes, kidney disease and cardiology, as well as seasoned
professionals with extensive pharmaceutical and healthcare
experience.
For a self-styled corporate governance guru, you have puzzlingly
compiled a roster of candidates that are far less qualified than
our current Board members, and in some cases, lack the very
independence you claim our slate is lacking. For example:
- You nominated Eric Ende again
this year to lead your efforts, even though he was resoundingly
rejected by Forest shareholders in 2011, receiving the lowest vote
total of any of the fourteen candidates in last year’s election.
Moreover, the incentives provided in your unorthodox profit-sharing
arrangement with him have already drawn criticism from various
sources, including Columbia Law School Professor Robert Jackson.
(See Reuters News “Icahn dangles bounty for nominee in Forest
fight,” 29 June 2012.)
- Daniel Ninivaggi has no
healthcare experience whatsoever, and as your salaried employee and
President of Icahn Enterprises, we must question whether he will
serve your interests over those of other Forest shareholders.
Notably, his primary corporate experience – was as inside legal
counsel for six years at the Lear Corporation an automobile seat
and other parts manufacturer.
- Andrew Fromkin was CEO of
Clinical Data, which we acquired last year, and Mr. Fromkin left
the company by mutual agreement shortly after the acquisition
closed. Mr. Fromkin has a remaining vested interest in the success
of one product – Viibryd – through a contingent value right
arrangement that was part of the Clinical Data acquisition. He
therefore has an incentive to favor one product’s success over
others in our portfolio or new product opportunities. Furthermore,
Mr. Fromkin would not be considered independent under our own
Corporate Governance Guidelines or the NYSE’s Corporate Governance
Rules.
- Pierre Legault’s recent
management roles at Jean Coutu and Rite-Aid Corp. have taken place
during periods rife with earnings misses, integration missteps and
mismanaged investor expectations.
In sum, we remain willing and ready to engage in a thoughtful
dialogue regarding how best to build value for our shareholders.
And to the extent that you have suggestions or ideas that can help,
we will review and consider them in good faith. But the Company’s
shareholders are not well-served by mudslinging. We trust that
Forest’s shareholders will be fully capable of deciding the issues
before them in the coming weeks of this election contest.
Sincerely,
/s/
Howard Solomon
About Forest Laboratories
Forest Laboratories' (NYSE: FRX) longstanding global
partnerships and track record developing and marketing
pharmaceutical products in the United States have yielded its
well-established central nervous system and cardiovascular
franchises and innovations in anti-infective, respiratory,
gastrointestinal and pain management medicine. Forest’s pipeline,
the most robust in its history, includes product candidates in all
stages of development across a wide range of therapeutic areas. The
Company is headquartered in New York, NY. To learn more, visit
www.FRX.com.
Forward-Looking Information
Except for the historical information contained herein, this
document contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. These
statements involve a number of risks and uncertainties, including
the difficulty of predicting FDA approvals, the acceptance and
demand for new pharmaceutical products, the impact of competitive
products and pricing, the timely development and launch of new
products, and the risk factors listed from time to time in Forest
Laboratories’ Annual Report on Form 10-K, Quarterly Reports on Form
10-Q and any subsequent SEC filings.
Important Additional Information
Forest Laboratories, its directors, director nominees and
certain of its executive officers may be deemed to be participants
in the solicitation of proxies from Forest shareholders in
connection with the matters to be considered at Forest
Laboratories’ 2012 Annual Meeting. Forest Laboratories has filed
its definitive proxy statement (as it may be amended, the “Proxy
Statement”) with the U.S. Securities and Exchange Commission (the
“SEC”) in connection with such solicitation of proxies from Forest
shareholders. FOREST SHAREHOLDERS ARE STRONGLY ENCOURAGED TO READ
THE PROXY STATEMENT AND ACCOMPANYING PROXY CARD AS THEY CONTAIN
IMPORTANT INFORMATION. Information regarding the ownership of
Forest's directors and executive officers in Forest stock,
restricted stock and options is included in their SEC filings on
Forms 3, 4 and 5, which can be found at the Company's website
(www.frx.com) in the section "Investors." More detailed information
regarding the identity of potential participants, and their direct
or indirect interests, by security holdings or otherwise, is set
forth in the Proxy Statement and other materials to be filed with
the SEC in connection with Forest Laboratories' 2012 Annual
Meeting. Information can also be found in Forest's Annual Report on
Form 10-K for the year ended March 31, 2012, filed with the SEC on
May 25, 2012. Shareholders can obtain the Proxy Statement, any
amendments or supplements to the Proxy Statement and other
documents filed by Forest Laboratories with the SEC for no charge
at the SEC's website at www.sec.gov. Copies are also available at
no charge at Forest Laboratories' website at www.frx.com or by
writing to Forest Laboratories at 909 Third Avenue, New York, New
York 10022.
This document contains quotes and excerpts from certain
previously published material. Unless otherwise indicated, consent
of the author and publication has not been obtained to use the
material as proxy soliciting material.
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