Forest Laboratories Inc. (FRX) has agreed to adopt new
corporate-governance measures in a proposed settlement of
shareholder lawsuits accusing the drug maker's directors of
overpaying long-time leader Howard Solomon and misleading investors
about the company's legal troubles.
The proposed settlement comes as the maker of antidepressant
Lexapro girds for another showdown with activist investor Carl
Icahn, who has nominated four directors for election at the
company's shareholders' meeting Wednesday.
Mr. Icahn, whose investment affiliates own nearly 10% of
Forest's shares, has criticized Forest Labs' corporate-governance
practices, but he failed last year to get his nominees on the
company's board. Forest Labs has urged shareholders to reject his
nominees again and elect the company's 10 nominees.
In a proposed settlement of shareholder litigation, Forest's
board would implement "measures related to conflicts of interest
regarding board discussions, compensation consultants, and
executive compensation policy, as well as the payment of certain
agreed legal fees of the plaintiffs," the company said in its
quarterly report filed Thursday with the U.S. Securities and
Exchange Commission. The company didn't elaborate on the
measures.
Forest agreed to the measures in a July 20 memorandum of
understanding with plaintiffs in shareholder lawsuits, according to
the SEC filing.
The company didn't admit any wrongdoing in the memorandum, it
said. The memorandum is subject to the drafting of a final
settlement agreement and approval by the New York State Supreme
Court, Forest said in its SEC filing.
A Forest spokeswoman declined immediate comment. Attorneys for
plaintiffs in the shareholder lawsuits couldn't immediately be
reached. A spokeswoman for Mr. Icahn declined immediate
comment.
Last year, three so-called shareholder-derivative lawsuits were
filed against the company's directors in state and federal courts
in New York. The suits were filed derivatively on behalf of
Forest.
The lawsuits generally alleged that the company's directors
breached their fiduciary duties by making false and misleading
statements about Forest's executive-compensation program, providing
excessive compensation to Mr. Solomon and supporting Mr. Solomon
against a push by the federal government to exclude him from
government health plans.
Last year, the Office of the Inspector General of the U.S.
Department of Health and Human Services proposed to exclude Mr.
Solomon from participation in federal health-care programs. The
push was in connection with Forest's 2010 agreement to plead guilty
to criminal charges of obstructing justice and violating drug laws,
and to pay $313 million to resolve the government's investigations
of allegedly improper marketing practices.
An exclusion of Mr. Solomon would have forced him to resign from
Forest so the company's drugs would continue to be reimbursed by
government programs, including Medicare. Forest's board defended
Mr. Solomon, saying he had done nothing wrong, and Mr. Solomon
challenged the government's proposal.
However, in August 2011, the government notified Mr. Solomon
that it no longer would pursue his exclusion.
Mr. Solomon, 84 years old, has been chairman since 1998, chief
executive since 1977 and a director since 1964.
One of the shareholder lawsuits alleged that Forest's directors
breached their fiduciary duties by "handsomely rewarding" Mr.
Solomon with increases in compensation between 2007 and 2010, even
as the company's profit declined and it experienced legal woes.
The lawsuit sought to remove Mr. Solomon as CEO and chairman,
and to force the election of new independent directors to comprise
a majority of the board. The suit also sought internal controls to
prevent excessive executive compensation.
Forest said in a recent regulatory filing that Mr. Solomon asked
that his base salary not be increased for 2012. His total
compensation for fiscal 2012 was valued at $8.5 million, down from
$8.8 million for fiscal 2011.
The proxy battle with Mr. Icahn has gotten personal. Mr. Icahn
raised the possibility in a June letter to Forest's board that Mr.
Solomon's son David Solomon was being groomed to be his father's
CEO successor. David Solomon is senior vice president of corporate
development and strategic planning at Forest.
Howard Solomon responded in a letter to Mr. Icahn that the CEO
succession planning at Forest was in the hands of independent
directors, and that his son would neither be favored nor hindered
as a CEO candidate because of the familial relationship. Mr.
Solomon also pointed out that Mr. Icahn's son works for his
father's firm.
Write to Peter Loftus at peter.loftus@dowjones.com
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