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Howard Solomon Sends Letter to Carl Icahn

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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.

Posted-In: News Hedge Funds Tech General


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