UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934

(Amendment No. )

 

Filed by the Registrant  x

Filed by a party other than the Registrant  o

 

Check the appropriate box:

 

o Preliminary Proxy Statement

o Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

x Definitive Proxy Statement

o Definitive Additional Materials

o Soliciting Material Pursuant to § 240.14a-12

 

FOREST LABORATORIES, INC.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

 

 

 

 

 

(3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

 

(4) Proposed maximum aggregate value of transaction:

 

 

(5) Total fee paid:

 

 

o Fee paid previously with preliminary materials.

o Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

(1) Amount Previously Paid:

 

 

(2) Form, Schedule or Registration Statement No.:

 

 

(3) Filing Party:

 

 

(4) Date Filed:

 

 

July 18, 2011

 

Dear Forest Stockholders:

 

It is my pleasure to invite you to Forest’s 2011 Annual Meeting of Stockholders. The Annual Meeting will be held on August 18, 2011 at 10:00 a.m., at JPMorgan Chase & Co., 270 Park Avenue, New York, NY 10017. Details regarding admission to the Annual Meeting and the business to be conducted are more fully described in the accompanying Notice of 2011 Annual Meeting of Stockholders and Proxy Statement.

 

Your Board of Directors is recommending a highly qualified, experienced and diverse slate of nominees for election at the 2011 Annual Meeting that will provide experience, leadership and continuity at a critical time for the Company’s future. Following a rigorous, comprehensive and thorough process to assemble a superior slate of director candidates, we selected three new independent nominees to augment your Board and complement the strengths of our seven current directors standing for re-election. These three new nominees are Christopher J. Coughlin, former Executive Vice President and Chief Financial Officer of Tyco International, Gerald M. Lieberman, former President and Chief Operating Officer of AllianceBernstein, and Brenton L. Saunders, Chief Executive Officer of Bausch + Lomb, and your Board believes they will make significant contributions and provide valuable experience and fresh perspectives to the Board. Your Board believes the entire ten-member slate is extremely well qualified to represent all of our stockholders and lead Forest through its next stage of growth and development.

 

Your management team and Board are excited about Forest and about continuing to create value for you. At the Annual Meeting, you will be asked to elect the ten directors named in the accompanying Proxy Statement, to conduct an advisory vote on the compensation of our named executive officers, to conduct an advisory vote on the frequency of future advisory votes on the compensation of certain of our executive officers, and to ratify the appointment of BDO USA, LLP as our independent registered public accounting firm.

 

We hope you will be able to attend the Annual Meeting, but if you cannot do so it is important that your shares be represented. Your vote is very important to Forest. We urge you to read the accompanying Proxy Statement carefully, and to use the Company’s WHITE proxy card to vote for the Board’s nominees and in accordance with the Board’s recommendations on the other proposals, as soon as possible, by telephone or Internet, or by signing, dating, and returning the enclosed WHITE proxy card in the postage-paid envelope provided, whether or not you plan to attend the Annual Meeting. Further instructions on how to vote are provided on the WHITE proxy card.

 

You may have heard that High River Limited Partnership and certain affiliated entities, a group of hedge funds led by Carl Icahn (the Icahn Group), have stated their intention to propose four director nominees for election at the Annual Meeting. Your Nominating and Governance Committee and Board have reviewed Icahn’s candidates, and we urge you to vote only for your Board’s proposed nominees by using the enclosed WHITE proxy card and not to sign or return or vote any proxy card sent to you by the Icahn Group. If you vote using a proxy card sent to you by the Icahn Group, you can subsequently revoke it by using the WHITE proxy card to vote by telephone or Internet, or by signing, dating and returning the enclosed WHITE proxy card in the postage-paid envelope provided. Only your last-dated proxy will count, and any proxy may be revoked at any time prior to its exercise at the Annual Meeting as described in this Proxy Statement.

 

Thank you for your continued support. If you have any questions, please contact MacKenzie Partners, Inc., our proxy solicitor who is assisting us in connection with the Annual Meeting, at (800) 322-2885.

 

Sincerely,

 

Chairman of the Board, President and Chief Executive Officer

 

FOREST LABORATORIES, INC.
NOTICE OF 2011 ANNUAL MEETING OF STOCKHOLDERS

 

The Annual Meeting of the Stockholders of Forest Laboratories, Inc. will be held on August 18, 2011 at 10:00 a.m., at JPMorgan Chase & Co., 270 Park Avenue, New York, NY 10017. We are holding this meeting to:

 

 

 

Only Forest stockholders of record at the close of business on June 24, 2011 may vote at the meeting or any adjournment of the meeting. A copy of the 2011 Annual Report to Stockholders has previously been mailed to Forest stockholders.

 

Please note that High River Limited Partnership and certain affiliated entities, a group of hedge funds led by Carl Icahn (the Icahn Group), have stated their intention to propose four alternative director nominees for election at the Annual Meeting. We urge you to vote for the nominees proposed by the Board by using the enclosed WHITE proxy card and not to sign or return or vote any proxy card sent to you by the Icahn Group. If you have already voted using a proxy card sent to you by the Icahn Group, you can revoke it by voting the enclosed WHITE proxy card by telephone or Internet, or by signing, dating and returning the WHITE proxy card in the postage-paid envelope provided. Only your last-dated proxy will count — any proxy may be revoked at any time prior to its exercise at the Annual Meeting as described in this Proxy Statement.

 

You are invited to attend the Annual Meeting. Whether or not you plan to attend the meeting in person, please vote by mail, by telephone or via the Internet in order to be certain your shares are represented at the meeting.

 

By Order of the Board of Directors,

 

HERSCHEL S. WEINSTEIN,
Corporate Secretary

 

July 18, 2011

New York, New York

Your Vote Is Important, No Matter How Many Or How Few Shares You Own

 

If you have questions about how to vote your shares, or need additional assistance, please contact MacKenzie Partners, who is assisting us in the solicitation of proxies:

 

 

105 Madison Avenue

New York, New York 10016

(212) 929-5500 (Call Collect)

Or

Call Toll-Free: (800) 322-2885

 

Email: frxproxy@mackenziepartners.com

 

IMPORTANT

 

We urge you NOT to sign the GOLD proxy card sent to you by the Icahn Group, which has notified us it intends to put forth its own slate. If you have already signed the Icahn Group’s GOLD card, you have every legal right to change your vote by using the enclosed WHITE proxy card to vote TODAY — by telephone, by Internet, or by signing, dating and returning the WHITE proxy card in the postage-paid envelope provided.

FOREST LABORATORIES, INC.
PROXY STATEMENT
TABLE OF CONTENTS

 

FOREST LABORATORIES, INC.
909 THIRD AVENUE
NEW YORK, NEW YORK 10022

 

PROXY STATEMENT

 

This Proxy Statement contains information related to our Annual Meeting of Stockholders to be held on August 18, 2011 beginning at 10:00 a.m., at JPMorgan Chase & Co., 270 Park Avenue, New York, NY 10017, and at any adjournments thereof. This Proxy Statement is being sent to stockholders on or about July 18, 2011. You should review this information together with our 2011 Annual Report to Stockholders, which was previously sent to you.

 

 

Q: Why did you send me this Proxy Statement?

 

A: We sent you this Proxy Statement and the enclosed WHITE proxy card because the Board of Directors (the Board) of Forest Laboratories, Inc. (we or Forest or the Company) is soliciting your proxy to vote at our 2011 Annual Meeting of Stockholders (the Annual Meeting) to be held on August 18, 2011 and at any adjournments of the Annual Meeting. This Proxy Statement summarizes information that is intended to assist you in making an informed vote on the proposals described in this Proxy Statement.

 

Q: Has the Company been notified that a stockholder intends to propose alternative director nominees at the Annual Meeting?

 

A: Yes. The Icahn Group, a group of affiliated hedge funds, has notified the Company of its intention to propose four alternative director nominees for election at the Annual Meeting. The Board unanimously recommends a vote FOR each of the Board’s nominees for director on the enclosed WHITE proxy card.

 

The Icahn Group nominees have NOT been endorsed by our Board.

 

We are not responsible for the accuracy of any information provided by or relating to the Icahn Group contained in any proxy solicitation materials filed or disseminated by, or on behalf of, the Icahn Group or any other statements that the Icahn Group may otherwise make.

 

Q: Who can vote at the Annual Meeting?

 

A: Only stockholders of record as of the close of business on June 24, 2011 (the Record Date) are entitled to vote at the Annual Meeting. On that date, there were 276,457,485 shares of our common stock (each, a share) outstanding and entitled to vote.

 

Q: How many shares must be present to conduct the Annual Meeting?

 

A: We must have a “quorum” present in person or by proxy to hold the Annual Meeting. A quorum is a majority of the outstanding shares entitled to vote. Abstentions and broker non-votes (defined below) will be counted for the purpose of determining the existence of a quorum.

 

Q: What matters are to be voted upon at the Annual Meeting?

 

A: Four proposals are scheduled for a vote:

 

 

 

 

As of the date of this Proxy Statement, our Board does not know of any other business to be presented at the Annual Meeting. If other business is properly brought before the Annual Meeting, the persons named on the enclosed WHITE proxy card will vote on these other matters in their discretion.

 

Q: How does the Board recommend that I vote?

 

A: The Board recommends that you vote:

 

 

Q: What should I do if I receive a proxy card from the Icahn Group?

 

A: The Icahn Group has stated its intention to propose four alternative director nominees for election at the Annual Meeting. If the Icahn Group proceeds with its alternative nominations, you may receive proxy solicitation materials from the Icahn Group, including an opposition proxy statement and GOLD proxy card. Your Board unanimously recommends you disregard it. If you have already voted using the GOLD proxy card, you have every right to change your vote by executing and returning the enclosed WHITE proxy card or by voting by telephone or via the Internet by following the instructions provided on the enclosed proxy card. Only the latest dated proxy you submit will be counted. If you vote against any Icahn Group nominee using the GOLD proxy card, your vote will not be counted as a vote for the Board’s nominees and will result in the revocation of any previous vote you may have cast on the Company’s WHITE proxy card. If you wish to vote pursuant to the recommendation of the Board, you should disregard any proxy card that you receive other than the WHITE proxy card. If you have any questions or need assistance voting, please call MacKenzie Partners, Inc. at (800) 322-2885.

 

Q: How do I vote before the Annual Meeting?

 

A: You may vote your shares by mail by filling in, signing and returning the enclosed WHITE proxy card. For your convenience, you may also vote your shares by telephone and Internet by following the instructions on the enclosed WHITE proxy card. If you vote by telephone or via the Internet, you do not need to return your proxy card. With respect to the election of directors, you may vote “FOR” all the nominees to the Board of Directors of Forest, you may withhold authority to vote for any nominee(s) you specify and you may withhold authority to vote for all of the nominees as a group. For the ratification of the selection of BDO USA, LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2012, and the advisory vote on the compensation of the Company’s Named Executive Officers, you may vote “FOR” or “AGAINST” or abstain from voting. For the advisory vote on the frequency of future advisory votes on the compensation of the Company’s Named Executive Officers, you may vote “3 Years”, “2 Years”, “1 Year” or abstain from voting. We encourage you to disregard any non-WHITE proxy cards you may receive.

Q: May I vote at the Annual Meeting?

 

A: Yes, you may vote your shares at the Annual Meeting if you attend in person. Even if you plan to attend the Annual Meeting in person, we recommend that you also submit your proxy or voting instructions as described above so that your vote will be counted if you later decide not to attend the Annual Meeting in person.

 

Q: What is the difference between holding shares as a stockholder of record and as a beneficial owner?

 

A: If your shares are registered in your name with our transfer agent, BNY Mellon Shareowner Services, you are the “stockholder of record” of those shares and this Notice of Annual Meeting and Proxy Statement and any accompanying documents have been provided directly to you by Forest. In contrast, if you purchased your shares through a brokerage or other financial intermediary, the brokerage or other financial intermediary will be the “stockholder of record” of those shares. Generally, when this occurs, the brokerage or other financial intermediary will automatically put your shares into “street name”, which means that the brokerage or other financial intermediary will hold your shares in its name or another nominee’s name and not in your name, but will keep records showing you as the real or “beneficial owner”. If you hold shares beneficially in street name, this Notice of Annual Meeting and Proxy Statement and any accompanying documents have been forwarded to you by your broker, bank or other holder of record.

 

Q: How do I vote if my bank or broker holds my shares in “street name”?

 

A: If you hold shares beneficially in street name, you may vote by submitting the enclosed voting instruction form. Telephone and Internet voting may be available – please refer to the voting instruction card provided by your broker.

 

Q: What should I do if I receive more than one WHITE proxy card or other set of proxy materials from the Company?

 

A: If you hold your shares in multiple accounts or registrations, or in both registered and street name, you will receive a WHITE proxy card for each account. Please sign, date and return all proxy cards you receive from the Company. If you choose to vote by phone or by Internet, please vote once for each WHITE proxy card you receive. Only your latest dated proxy for each account will be voted.

 

If the Icahn Group proceeds with its previously announced alternative nominations, we will likely conduct multiple mailings prior to the Annual Meeting date to ensure stockholders have our latest proxy information and materials to vote. We will send you a new WHITE proxy card with each mailing, regardless of whether you have previously voted. The latest dated proxy you submit will be counted, and, if you wish to vote as recommended by the Board then you should only submit WHITE proxy cards.

 

Q: How many votes do I have?

 

A: Each share of common stock that you own as of the close of business on the Record Date entitles you to one vote on each matter voted upon at the Annual Meeting. As of the close of business on the Record Date, there were 276,457,485 shares of our common stock outstanding.

 

Q: May I change my vote?

 

A: Yes, you may change your vote or revoke your proxy at any time before the vote at the Annual Meeting. You may change your vote prior to the Annual Meeting by executing a valid WHITE proxy card bearing a later date and delivering it to us prior to the Annual Meeting at Forest Laboratories, Inc., Attention: Corporate Secretary, 909 Third Avenue, New York, New York 10022. You may withdraw your vote at the Annual Meeting and vote in person by giving written notice to our Corporate Secretary. You may also revoke your

vote without voting by sending written notice of revocation to our Corporate Secretary at the above address. Attendance at the meeting will not by itself revoke a previously granted proxy.

 

If you have previously signed a GOLD proxy card sent to you by the Icahn Group, you may change your vote by marking, signing, dating and returning the enclosed WHITE proxy card in the accompanying postage-paid envelope or by voting by telephone or via the Internet by following the instructions on your WHITE proxy card. Submitting an Icahn Group proxy card will revoke votes you have made via the Company’s WHITE proxy card.

 

Q: How are my shares voted if I submit a WHITE proxy card but do not specify how I want to vote?

 

A: If you submit a properly executed WHITE proxy card but do not specify how you want to vote, your shares will be voted “FOR” the election of each of the Company’s nominees for director; “FOR” approval of the compensation of the Company’s Named Executive Officers; for “1 Year” with respect to how frequently future advisory votes on the compensation of the Company’s Named Executive Officers should occur; and “FOR” the ratification of the selection of BDO USA, LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2012.

 

Q: Will my shares be voted if I don’t provide instructions to my broker?

 

A: If you are the beneficial owner of shares held in “street name” by a broker, you must instruct your broker how to vote your shares. If you do not provide voting instructions at least ten days prior to the Annual Meeting date, your broker will be entitled to vote the shares with respect to “discretionary” items but will not be permitted to vote the shares with respect to “non-discretionary” items (we refer to the latter case as a broker non-vote). In the case of a broker non-vote, your broker can register your shares as being present at the Annual Meeting for purposes of determining the presence of a quorum, but will not be able to vote on those matters for which specific authorization is required under the rules of the New York Stock Exchange (NYSE).

 

Under NYSE rules, the proposal to ratify the appointment of BDO USA, LLP as Forest’s independent registered public accounting firm for the fiscal year ending March 31, 2012, the proposal to elect directors and the advisory votes relating to executive compensation are non-discretionary matters for which specific instructions from beneficial owners are required. As a result, your broker will not be allowed to vote with respect to the proposal to ratify BDO USA, LLP’s appointment as independent registered public accounting firm, the election of directors, the proposal to approve (on an advisory basis) the compensation of the Company’s Named Executive Officers, or the proposal to approve (on an advisory basis) the frequency of future advisory votes on the compensation of the Company’s Named Executive Officers on your behalf if you do not provide your broker with specific voting instructions on these proposals.

 

Your vote is important and we strongly encourage you to vote your shares by following the instructions provided on the enclosed voting instruction card. Please vote promptly.

 

Q: What vote is required to elect directors?

 

A: As a result of the Icahn Group’s declared intention to propose alternative director nominees, assuming such nominees are in fact proposed up for election at the Annual Meeting and such nominees have not been withdrawn by the Icahn Group on or prior to the tenth day before we mail the Notice of Meeting in this Proxy Statement to our stockholders, there will be more nominees than available positions and, as provided in the Company’s Bylaws and Corporate Governance Guidelines, directors will be elected on a plurality basis. This means that the ten candidates receiving the highest number of “FOR” votes will be elected. A properly executed proxy card marked “WITHHOLD” with respect to the election of a director nominee will be counted for purposes of determining if there is a quorum at the Annual Meeting, but will not be considered to have been voted for or against the director nominee. Withhold votes and broker non-votes will have no effect on the outcome of the election.

 

It will NOT help elect your Board if you sign and return proxies sent by the Icahn Group even if you vote “AGAINST” or withhold on their directors using the Icahn GOLD proxy card. In fact, doing so may cancel any previous vote you cast on the Company’s proxy card. The only way to support your Board’s nominees is to vote “FOR” the Board’s nominees on the ‘WHITE‘ proxy card.

 

In the event that the Icahn Group withdraws its nominees on or prior to the tenth day before we mail the Notice of Meeting in this Proxy Statement to our stockholders, we will disclose such withdrawal to our stockholders and, as provided by the Company’s Bylaws and Corporate Governance Guidelines, our directors will be elected by a vote of a majority of the votes cast. In the event that our directors are elected by a vote of a majority of the votes cast, you may vote “FOR” or “AGAINST” or abstain from voting with respect to each director nominee. A majority of votes cast means that the number of shares cast “FOR” a director’s election exceeds the number of votes cast “AGAINST” such director’s election. Abstentions and broker non-votes will have no effect on the outcome of the election.

 

Q: What happens in an uncontested election where the “majority of votes cast” standard applies and an incumbent director does not receive enough votes to be elected?

 

A: Pursuant to our Corporate Governance Guidelines, the Board expects an incumbent director to tender his or her irrevocable resignation if he or she fails to receive the required number of votes cast for his or her re-election. In order to ensure that the Company always has a fully functioning Board, if an incumbent director fails to receive the required number of votes cast, he or she continues as a holdover director except in a contested election where an alternative director has been duly elected. The Nominating and Governance Committee will act on an expedited basis to determine whether to accept or reject the director’s resignation and will submit such recommendation to the Board for prompt consideration. The Nominating and Governance Committee and the Board may consider any factors they deem relevant in deciding whether to accept a director’s resignation. The Board will make its decision public as soon as practicable following the Annual Meeting.

 

Q: What vote is required to approve, on an advisory basis, the compensation of the Company’s Named Executive Officers?

 

A: This matter is being submitted to enable stockholders to approve, on an advisory basis, the compensation of the Company’s Named Executive Officers. Since it is an advisory vote, the provisions of our Bylaws regarding the vote required to “approve” a proposal are not applicable to this matter. In order to be approved on an advisory basis, this proposal must receive the “FOR” vote of a majority of the shares present in person or by proxy and entitled to vote on the matter. Abstentions will have the same effect as a vote against the proposal. Broker non-votes will have no effect on this proposal as brokers are not entitled to vote on such proposals in the absence of voting instructions from the beneficial owner.

 

Q: What vote is required to approve, on an advisory basis, the frequency of future advisory votes on the compensation of the Company’s Named Executive Officers?

 

A: This matter is being submitted to enable stockholders to express a preference as to whether future advisory votes on executive compensation should be held every year, every two years or every three years. Since it is an advisory vote, the provisions of our Bylaws regarding the vote required to “approve” a proposal are not applicable to this matter. Abstentions and broker non-votes will not be counted as expressing any preference. If none of the frequency alternatives (one year, two years or three years) receives a majority vote, we will consider the frequency that receives the highest number of votes by stockholders to be the frequency that has been selected by stockholders. However, because this vote is advisory and not binding on us or our Board in any way, our Board may decide that it is in our and our stockholders’ best interests to hold an advisory vote on executive compensation more or less frequently than the alternative selected by our stockholders.

Q: What vote is required to ratify the selection of BDO USA, LLP as Forest’s independent registered public accounting firm for the fiscal year ending March 31, 2012?

 

A: For approval of this proposal, the proposal must receive the “FOR” vote of a majority of the shares present in person or by proxy and entitled to vote on the matter. Abstentions will have the same effect as a vote against the proposal. Broker non-votes will have no effect on this proposal as brokers are not entitled to vote on this proposal in the absence of voting instructions from the beneficial owner.

 

Q: Who will count the votes?

 

A: Votes will be counted by an independent inspector of election appointed for the Annual Meeting by the Chairman of the Annual Meeting.

 

Q: What do I need for admission to the Annual Meeting?

 

A: Attendance at the Annual Meeting or any adjournment or postponement thereof will be limited to record and beneficial stockholders as of the Record Date, individuals holding a valid proxy from a record holder, and other persons authorized by the Company. If you are a stockholder of record, your name will be verified against the list of stockholders of record prior to your admittance to the Annual Meeting or any adjournment or postponement thereof. You should be prepared to present photo identification for admission. If you hold your shares in street name, you will need to provide proof of beneficial ownership on the Record Date, such as a brokerage account statement showing that you owned our stock as of the Record Date, a copy of a voting instruction form provided by your broker, bank or other nominee, or other similar evidence of ownership as of the Record Date, as well as your photo identification, for admission. If you do not provide photo identification or comply with the other procedures described above upon request, you will not be admitted to the Annual Meeting or any adjournment or postponement thereof. For security reasons, you and your bags will be subject to search prior to your admittance to the Annual Meeting.

 

Q: Who pays for the Company’s solicitation of proxies?

 

A: We will pay for the entire cost of soliciting proxies on behalf of the Company. We will also reimburse brokerage firms, banks and other agents for the cost of forwarding the Company’s proxy materials to beneficial owners. In addition, our directors and employees may solicit proxies in person, by telephone, via the Internet or by other means of communication. Directors and employees will not be paid any additional compensation for soliciting proxies, but MacKenzie Partners, Inc. (MacKenzie), our third party proxy solicitor, will be paid a fee, estimated to be about $550,000, for rendering solicitation services. MacKenzie expects that approximately 75 of its employees will assist in the solicitation. MacKenzie will ask brokerage houses and other custodians and nominees whether other persons are beneficial owners of our common stock.

 

Our aggregate expenses, including those of MacKenzie, related to our solicitation of proxies in excess of those normally spent for an Annual Meeting as a result of the potential proxy contest and excluding salaries and wages of our regular employees, are expected to be approximately $2,500,000, of which approximately $6,000 has been spent to date. Appendix B sets forth information relating to our director nominees as well as certain of our directors, officers and employees who are considered “participants” in our solicitation under the rules of the U.S. Securities and Exchange Commission (SEC) by reason of their position as directors or director nominees of the Company or because they may be soliciting proxies on our behalf.

 

Q: How can I find out the results of the voting at the Annual Meeting?

 

A: We will announce preliminary results at the Annual Meeting. We will report final results in a filing with the SEC on Form 8-K.

Q: What is the deadline to propose actions for consideration at next year’s Annual Meeting of Stockholders?

 

A: Stockholders may present proper proposals for inclusion in our proxy statement and for consideration at the next annual meeting of stockholders by submitting their proposals in writing to the Company in a timely manner. Proposals should be addressed to: Forest Laboratories, Inc., Attention: Corporate Secretary, 909 Third Avenue, New York, New York 10022. For a stockholder proposal to be considered for inclusion in our proxy statement for our 2012 Annual Meeting of Stockholders, we must receive the written proposal no later than March 20, 2012. In addition, stockholder proposals must otherwise comply with the requirements of Rule 14a-8 promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act).

 

Our Bylaws also establish an advance notice procedure for stockholders who wish to present a proposal, including the nomination of directors, before an annual meeting of stockholders but do not intend for the proposal to be included in our proxy statement. Pursuant to our Bylaws, a proposal may be brought before the meeting by a stockholder who was a stockholder of record at the time notice is given and is entitled to vote at the annual meeting, and who complied with the notice procedures specified in our Bylaws. To be timely for our 2012 Annual Meeting, we must receive the written notice at our principal executive offices between May 20, 2012 and June 19, 2012. For further information on how a stockholder may nominate a candidate to serve as a director, please see the disclosure appearing under the heading, “Selection of Nominees for Election to the Board” on Page 21.

 

If a stockholder who has notified us of his or her intention to present a proposal at an annual meeting does not appear to present his or her proposal at such meeting, we are not required to present the proposal for a vote at such meeting.

 

Q: What is “householding” and how does it work?

 

A: The SEC’s “householding” rules permit us to deliver only one set of proxy materials to stockholders who share an address unless otherwise requested. This procedure reduces printing and mailing costs. If you share an address with another stockholder and have received only one set of proxy materials, you may request a separate copy of these materials at no cost to you by writing to Forest Laboratories, Inc., Attention: Corporate Secretary, 909 Third Avenue, New York, New York 10022, or by calling us at (212) 421-7850. Alternatively, if you are currently receiving multiple copies of the proxy materials at the same address and wish to receive a single copy in the future, you may contact us by calling or writing to us at the telephone number or address given above.

 

If you are a beneficial owner (i.e., your shares are held in the name of a bank, broker or other holder of record), the bank, broker or other holder of record may deliver only one copy of the Notice of Annual Meeting and Proxy Statement to stockholders who have the same address unless the bank, broker or other holder of record has received contrary instructions from one or more of the stockholders. If you wish to receive a separate copy of the Notice of Annual Meeting and Proxy Statement, now or in the future, you may contact us at the address or telephone number above and we will promptly deliver a separate copy. Beneficial owners sharing an address, who are currently receiving multiple copies of the Notice of Annual Meeting and Proxy Statement and wish to receive a single copy in the future, should contact their bank, broker or other holder of record to request that only a single copy be delivered to all stockholders at the shared address in the future.

 

The following table sets forth, as of June 24, 2011, the number of shares of common stock owned beneficially by any persons we know to be beneficial owners of more than five percent of our outstanding shares, each of our directors and our director nominees and each of our executive officers named in the Summary Compensation Table below and all of our directors and executive officers as a group: The percentage of ownership is calculated based upon the 276,457,485 shares of common stock issued and outstanding as of June 24, 2011.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal securities laws require our executive officers and directors and persons owning more than 10% of our common stock to file certain reports on ownership and changes in ownership with the SEC. Based on a review of our records and other information, we believe that during fiscal year 2011, our executive officers and directors and all persons holding more than 10% of our common stock timely filed all such Section 16(a) reports.

PROPOSAL 1
ELECTION OF DIRECTORS

 

Overview of Election of Directors

 

Our entire Board is elected each year at the Annual Meeting of Stockholders, and we are recommending a highly qualified, experienced and diverse slate of ten nominees for election at the 2011 Annual Meeting, each of whom has been recommended by our Nominating and Governance Committee and approved by our Board. Prior to the 2011 Annual Meeting, the Board consisted of nine members. However, in connection with our process of identifying, recruiting and selecting the most qualified slate of nominees to be elected at the 2011 Annual Meeting, the Board increased its size to ten, effective at the 2011 Annual Meeting, so as to accommodate an additional director candidate. The ten nominees listed below include eight independent directors as defined in the NYSE rules and regulations, three of whom are our new independent director nominees, Christopher J. Coughlin, Gerald M. Lieberman and Brenton L. Saunders. In addition to these three new nominees, seven of our current directors are standing for re-election. Having engaged in a rigorous, comprehensive and thorough process to fashion the most qualified slate of directors to lead Forest into the future, we are confident we have assembled a team of director nominees that will best serve the interests of all of our stockholders.

 

Each nominee elected as a director will continue in office until the next Annual Meeting of Stockholders or until his or her successor has been elected or appointed. Each person nominated below has consented to be named in this Proxy Statement and has agreed to serve if elected.

 

Background to the Board’s Recommendation in Favor of Forest’s Nominees

 

Our Board of Directors has been engaged in a long-term effort to strengthen its composition in service of the best interests of Forest stockholders. In the last five years, we bolstered our Board with two new independent directors who have brought valuable medical experience in distinct and critical therapeutic areas — Dr. Peter J. Zimetbaum, a Director of Clinical Cardiology at Beth Israel Deaconess Medical Center and an Associate Professor of Medicine at Harvard Medical School, in 2010 and Dr. Nesli J. Basgoz, the Associate Chief for Clinical Affairs, Division of Infectious Diseases at Massachusetts General Hospital, in 2006. For the 2011 Annual Meeting, our Board engaged in a robust director identification and recruitment process to improve the Board even further. This strategy-driven process was led by Kenneth E. Goodman, our presiding independent director, in consultation with the Nominating and Governance Committee and other members of the Board, with input from Forest’s advisors, including Heidrick & Struggles, a leading executive search and recruiting firm retained to enhance the Board’s efforts, and management. Following outreach to potential candidates, engagement with our stockholders and in-depth assessments, feedback and benchmarking of potential director nominees (including our existing directors and the candidates nominated by the Icahn Group) against specified criteria of attributes, skills and competencies and the boards of other companies in our industry, the Nominating and Governance Committee recommended the current ten-person slate, which our Board approved, composed of three new independent director nominees and seven of our incumbent directors. In light of their complementary experience, relevant expertise, and diverse industry and educational backgrounds, these nominees, who bring executive leadership and insights from the fields of pharmaceuticals, research and development, healthcare, law, finance and accounting, will serve as a superior and independent board best-suited to lead Forest into the future.

 

We believe that each of our nominees has professional experience in areas relevant to our strategy and operations and offers experience, leadership and continuity at a critical time for the Company’s future. We also believe that our nominees have other attributes necessary to create an effective board: high personal and professional ethics, integrity and values; vision and long-term strategic perspective; experience with regulatory and government processes; practical judgment and excellent decision-making skills; the ability to devote significant time to serve on our board and its committees and to work in a collaborative manner with other board members; and a commitment to representing the long-term interests of all our stockholders.

The names of our Board nominees and certain other information about them is set forth further below.

 

OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” EACH OF THE BOARD’S TEN NOMINEES FOR DIRECTOR ON THE ENCLOSED WHITE PROXY CARD.

 

The persons named as proxies intend to vote the proxies “FOR” the election of each of these nominees unless you indicate on the WHITE proxy card a vote against or an abstention with respect to any of the nominees. If for some reason any director nominee is unable to serve, or for good cause will not serve if elected, the persons named as proxies may vote for a substitute nominee recommended by the Board, and unless you indicate otherwise on the WHITE proxy card, the proxies will be voted in favor of the remaining nominees. If any substitute nominees are designated, we will file an amended proxy statement that, as applicable, identifies the substitute nominees, discloses that such nominees have consented to being named in the revised proxy statement and to serve if elected, and includes certain biographical and other information about such nominees required by SEC rules.

 

Background to Potential Contested Solicitation

 

On June 8, 2011, the Company received a notice under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 regarding the intention of Carl C. Icahn to acquire more than $659.5 million but less than 25% of our voting securities. On June 10, 2011, High River Limited Partnership and certain affiliated entities, a group of hedge funds led by Mr. Icahn (collectively, the Icahn Group) delivered a notice to the Company announcing their intent to nominate a slate of four alternative directors to stand for election at the Annual Meeting of Stockholders. On June 14, 2011, representatives of the Company met with representatives of the Icahn Group. At the June 14 meeting, the parties discussed the Company’s business strategy, the Icahn Group representatives shared with the Company’s representatives their perspectives on the Company and the upcoming annual election and the Icahn Group also indicated they would potentially be willing to withdraw their nomination notice and competing nominee slate if the Company were to agree to appoint to the Board three nominees selected by the Icahn Group and implement certain changes relating to potential stockholder rights plans, Section 203 of the General Corporation Law of the State of Delaware and issuance of shares without stockholder approval. No agreements or understandings resulted from that meeting.

 

In addition, by letter dated June 16, 2011, the Icahn Group submitted a request pursuant to Section 220 of the General Corporation Law of the State of Delaware to inspect certain books and records of the Company relating to the potential exclusion action by the Office of the Inspector General, Department of Health and Human Services with respect to participation by Mr. Howard Solomon in federal healthcare programs (collectively, the Icahn Demand). The Company rejected the demand as improper under Delaware law. In particular, the Company believed that the Icahn Demand failed to establish a proper purpose for seeking inspection of the Company’s books and records, both because it was impermissibly vague and because it failed to offer a credible basis for the wrongdoing it purportedly sought to investigate. Furthermore, the Icahn Demand was objectionable because its requests were overly broad and sought confidential information and information protected from disclosure by law. On June 24, 2011, the Company was notified that early termination had been granted to Carl C. Icahn with respect to the applicable Hart-Scott-Rodino waiting period. On June 28, 2011, the Icahn Group commenced litigation in the Delaware Court of Chancery seeking access to the materials requested in the Icahn Demand. The action is captioned High River Limited Partnership, et al. v. Forest Laboratories, Inc., C.A. No. 6614-CS, and the Company intends to defend its rights under and comply fully with Delaware law. In addition, on June 21, 2011, the Icahn Group submitted a request to inspect the Company’s stocklists of stockholders and ancillary materials; arrangements have been made to provide such stocklist-related materials to which the Icahn Group is entitled under Delaware law. Despite the Icahn Demand’s flaws, the Company is agreeing to produce the requested material subject to the execution and entry of a customary protective order.

 

On July 12, 2011, representatives of the Company contacted Mr. Icahn and told him of the possibility that the Company would be adding several new directors to the nominee slate, and that, in the context of a settlement to avoid the distraction of a proxy fight, the Company might be willing to offer the Icahn Group input with respect to one new nominee. Mr. Icahn did not accept such proposal.

 

Biographical Information for Nominees

 

In addition to the information set forth below, Appendix B sets forth information relating to our director nominees as well as certain of our directors, officers and employees who are considered “participants” in our solicitation under the rules of the SEC by reason of their position as directors or director nominees of the Company or because they may be soliciting proxies on our behalf. The following persons have been nominated as directors:

 

 

Mr. Solomon, 83, is Chairman, Chief Executive Officer and President of Forest. He began his career as an attorney at leading law firms in New York and joined Forest in 1964 as a director and secretary of the Board while serving as outside counsel for the Company. He became CEO of Forest in 1977 and Chairman in 1998. Mr. Solomon is a Trustee of the New York Presbyterian Hospital and previously served on the Board of Cold Spring Harbor Laboratories. He is currently a member of the Executive Committee of the Board of Directors of the Metropolitan Opera and Chairman of its Finance Committee. He also serves on the Board of the New York City Ballet. Mr. Solomon graduated from the City College of New York and holds a J.D. from Yale University.

 

We believe that Mr. Solomon’s experience as a senior executive and leader in our industry, his in-depth knowledge of our Company and its day-to-day operations and his strong record and strategic vision for the Company qualify him to serve on our Board.

 

 

Dr. Basgoz, 53, is the Associate Chief for Clinical Affairs, Division of Infectious Diseases at Massachusetts General Hospital (MGH) and serves on the hospital’s Board of Trustees. In addition, Dr. Basgoz is an Associate Professor of Medicine at Harvard Medical School. Previously, she served as Clinical Director in the Infectious Diseases Division of MGH for six years. Dr. Basgoz earned her M.D. Degree and completed her residency in internal medicine at Northwestern University Medical School. She also completed a fellowship in the Infectious Diseases Division at the University of California at San Francisco. She is board certified in both infectious diseases and internal medicine.

 

Dr. Basgoz’s broad medical expertise and nationally recognized leadership in the medical field, as well as her extensive clinical trial experience has equipped her to effectively advise the Board and management with respect to many strategic matters, including navigating regulatory approvals and the clinical trial process. Moreover, her particular expertise in infectious diseases has enabled Dr. Basgoz to advise the Board and management with respect to the Company’s current and potential portfolio of drugs within the relevant indications, including Forest’s recently launched Teflaro product and other antibiotics under development at the Company.

 

 

Mr. Coughlin, 59, most recently served as Executive Vice President and Chief Financial Officer of Tyco International from 2005 to 2010 and remains an advisor to Tyco. During his tenure, he played a central role in the separation of Tyco into three independent, public companies and provided financial leadership surrounding major transactions, including the $2 billion acquisition of Broadview Security, among many other responsibilities and accomplishments. Prior to joining Tyco, he worked as the Chief Operating Officer of the Interpublic Group of Companies from June 2003 to December 2004, as Chief Financial Officer from August

2003 to June 2004 and as a director from July 2003 to July 2004. Previously, Mr. Coughlin was Executive Vice President and Chief Financial Officer of Pharmacia Corporation from 1998 until its acquisition by Pfizer in 2003. Prior to that, he was Executive Vice President of Nabisco Holdings and President of Nabisco International. From 1981 to 1996 he held various positions, including Chief Financial Officer, at Sterling Drug. Mr. Coughlin is currently serving as the lead independent director on the board of Dun & Bradstreet, where he is a member of the Audit Committee and the Compensation and Benefits Committee. He also serves on the board of Covidien plc, where he is Chair of the Compliance Committee. Mr. Coughlin has a B.S. in accounting from Boston College.

 

A veteran of service and leadership on public company boards, Mr. Coughlin’s wide array of senior management positions in global companies, pharmaceutical background, finance experience and compliance and governance expertise will further equip the Board in making strategic decisions for the long-term growth of the Company.

 

 

Mr. Goldwasser, 71, is a practicing attorney and has been a shareholder since 1992 at the law firm Vedder Price, P.C., where he is a member of the firm’s Accounting Law Practice Group. Mr. Goldwasser previously served as Chairman of the American Bar Association’s Business Law Section’s Committee on Law and Accounting and as the American Bar Association’s Co-Chairman of The National Conference of Lawyers and Certified Public Accountants. From 2003 to 2006, he also was a member of the Auditing Standards Board of the American Institute of Certified Public Accountants. Mr. Goldwasser holds a B.A. from Harvard University and an LL.B. from Columbia Law School.

 

Mr. Goldwasser’s leadership roles in accounting organization, service on the AICPA’s Auditing Standards Board, deep expertise in legal, regulatory and accounting matters and his deep understanding of Forest make him a valuable contributor to the Board.

 

 

Mr. Goodman, 63, is the former President and Chief Operating Officer of Forest, a position that he held from 1998 to 2006. For eighteen years prior thereto, Mr. Goodman served as Forest’s Vice President, Finance and Chief Financial Officer and was named Executive Vice President, Operations in February 1998. From 1975 to 1980, he served as a senior financial officer at Wyeth, and before that, as a C.P.A. at Main Hurdman, which is now part of KPMG LLP. Mr. Goodman currently serves Syracuse University as Vice Chairman of the Board of Trustees, a member of the Executive Committee and Chairman of the Audit Committee; he previously served as Chairman of the Budget Committee. He is also Chairman of the International Board of Directors of the Israel Cancer Research Fund and Co-Chairman of its New York Board. Mr. Goodman is a C.P.A. and holds a B.S. degree from The Whitman School of Management at Syracuse University.

 

Mr. Goodman’s intimate knowledge of the Company’s operations, having served as President and Chief Operating Officer of Forest with broad responsibility for sales, commercial operations, compliance, manufacturing operations, information technology and other areas, his substantial expertise in financial matters, and his service as an important interface between management and the Board as its presiding independent director, make him a valuable member of the Board.

 

 

Mr. Lieberman, 64, most recently served as the President and Chief Operating Officer of AllianceBernstein from 2004 to 2009, where he oversaw several critical functions for AllianceBernstein, including finance, global risk management, technology, operations, human resources, and investor and public relations. In addition, he was instrumental in developing AllianceBernstein’s global integrated platform and enhancing its corporate governance and financial transparency. Prior to joining AllianceBernstein in 1998,

Mr. Lieberman held a number of senior positions at Fidelity Investments from 1993 to 1998, including Chief Financial Officer and Chief of Administration and he was a member of Fidelity’s operating committee, reporting directly to the Chairman. Before joining Fidelity, Mr. Lieberman spent 14 years with Citicorp, where he served as Senior Human Resources Officer and a member of the policy committee, reporting to the Company’s Chairman and Chief Executive Officer. At Citicorp, he also held several other senior leadership positions, including Chief Executive Officer of Citibank Mexico and Division Head of Latin America. Mr. Lieberman is currently serving as a director at Computershare. He is also a trustee of the University of Connecticut Foundation and was a practicing C.P.A with Arthur Anderson. He received a B.S. from the University of Connecticut and attended New York University’s Graduate School of Business Administration.

 

Mr. Lieberman’s senior roles at AllianceBernstein and Fidelity Investments, premier investment and asset management firms, and his breadth and depth of experiences, including his finance and accounting expertise and career-long focus on risk management, enable him to provide important and valuable perspectives to the Board.

 

 

Dr. Olanoff, 59, served as Forest’s Chief Operating Officer from 2006 to 2010 and currently serves as Senior Scientific Adviser to the Company. From July 2005 to October 2006, Dr. Olanoff was President and Chief Executive Officer at Celsion Corporation, an oncology drug development company. He also served as Executive Vice President and Chief Scientific Officer of Forest from 1995 to 2005. Prior to joining Forest in 1995, Dr. Olanoff served as Senior Vice President of Clinical Research and Development at Sandoz Pharmaceutical Corporation (now a division of the Novartis Group) and at the Upjohn Company in a number of positions including Corporate Vice President of Clinical Development and Medical Affairs. Over his entire career, he was involved in 30 product approvals. In addition, he is currently an adjunct Assistant Professor and Special Adviser to the President for Corporate Affairs at the Medical University of South Carolina (MUSC), as well as a Director of the MUSC Foundation for Research Development, which is a non-profit foundation created to benefit the university. He holds a Ph.D. in biomedical engineering and an M.D. degree from Case Western Reserve University.

 

Dr. Olanoff’s detailed knowledge of the pharmaceutical industry, his broad operational experience and research and development leadership over the course of his career at Forest, Sandoz and Upjohn, including with respect to thirty product approvals, and his service as a senior executive and intimate knowledge of Forest’s operations combine to make him an important asset to the Board.

 

 

Dr. Salans, 75, is a Clinical Professor and member of the Clinical Attending Staff of Internal Medicine at the Mount Sinai Medical School. Prior thereto, Dr. Salans was a senior executive at Sandoz Pharmaceutical Corporation (now a division of the Novartis Group). Dr. Salans is a former Director of the National Institutes of Arthritis, Diabetes, Digestive and Kidney Diseases of the National Institutes of Health. He served as Professor of Medicine and Director of the Division of Endocrinology at the Dartmouth Hitchcock Medical Center, Hanover, from 1968-1975. He also founded and is president of LBS Advisors, Inc., a consultancy serving several pharmaceutical and biotechnology companies, academic institutions, the National Institutes of Health and many investment firms. He serves on the board of directors of PharmaIN Corporation, a biopharmaceutical company. Dr. Salans earned a B.A. from University of Michigan and M.D. from University of Illinois.

 

Dr. Salans’ recognized leadership in the medical field, his varied positions in the pharmaceutical sector, and particular medical expertise in the fields of diabetes mellitus, obesity and endocrinology and clinical research experience bring valuable perspectives to the Board on research and development matters generally and with respect to the Company’s current and potential portfolio drugs within such indications. As a practicing physician in addition to his other roles, Dr. Salans bridges the gap between basic science and clinical medicine, enabling him to offer valuable insights to the Board.

 

 

Mr. Saunders, 41, has been the Chief Executive Officer of Bausch + Lomb and a board director since March 2010. Previously, Mr. Saunders served as a senior executive with Schering-Plough from 2003 to 2010, most recently as President of Global Consumer Health Care. He also served as Head of Integration for both Schering-Plough’s merger with Merck & Co. and for its $16 billion acquisition of Organon BioSciences. Before joining Schering-Plough, Mr. Saunders was a Partner and Head of the Compliance Business Advisory Group at PricewaterhouseCoopers LLP from 2000 to 2003. Prior to that, he was Chief Risk Officer at Coventry Health Care between 1998 and 1999 and a co-founder of the Health Care Compliance Association in 1995. Mr. Saunders began his career as Chief Compliance Officer for the Thomas Jefferson University Health System. In addition to the Bausch + Lomb board, he serves on the boards of ElectroCore LLC and the Overlook Hospital Foundation. He is also the former Chairman of the New York chapter of the American Heart Association. Mr. Saunders was also recently named to the Federal Reserve Bank of New York’s Upstate New York Regional Advisory Board. He received a B.A. from the University of Pittsburgh, an M.B.A. from Temple University School of Business, and a J.D. from Temple University School of Law.

 

Given Mr. Saunders’ leadership experience as CEO of a global, branded healthcare company and deep pharmaceutical experience, he will be an invaluable addition to the Board. In addition to his other attributes, his 15 years of senior compliance experience and broad regulatory expertise at a number of different companies, including Bausch + Lomb and Schering-Plough, will prove particularly valuable.

 

 

Dr. Zimetbaum, 47, has served as Director of Clinical Cardiology at Beth Israel Deaconess Medical Center in Boston (BIDMC) since 2005 and served as Director of Clinical Electrophysiology at BIDMC from 2001 to 2005. Additionally, since 2006, Dr. Zimetbaum has been an Associate Professor of Medicine at the Harvard Medical School (HMS), and he currently serves on the HMS Standing Committee on Conflicts of Interest. Dr. Zimetbaum received his M.D. degree from the Albert Einstein College of Medicine in 1990 and is board certified in both cardiovascular medicine and cardiovascular electrophysiology.

 

Dr. Zimetbaum’s extensive experience in the practice of medicine and clinical trials provides the Board and management with the perspectives of physicians and other healthcare providers who use the Company’s products and with insight into the clinical trial process. His expertise in cardiology, including the cardiovascular safety profile of products, is a valuable resource to the Board and management in analyzing and developing current and potential portfolio drugs. In addition, his service on Harvard Medical School’s conflict of interest committee provides the Company with important insights on the ethics of healthcare.

 

Purported Derivative Litigation

 

On July 13, 2011, Sanjay Israni, an alleged shareholder of Forest, commenced purported derivative litigation on behalf of the Company against the Forest directors and Forest itself in the Federal District Court for the Southern District of New York. The action is captioned Israni v. Solomon, et al., No. 11 CIV 4805. The complaint generally alleges that the directors breached their fiduciary duties in connection with their administration of the Company’s executive compensation policies and disclosure of those policies, their oversight and control over the Company’s sales and marketing practices, and their response to the potential exclusion action against Howard Solomon by the Office of the Inspector General for the Department of Health and Human Services. The complaint seeks both monetary and equitable relief. Forest believes that the plaintiff may not properly bring claims on behalf of the Company and that the claims themselves are meritless. Forest intends to defend itself vigorously against the lawsuit.

 

 

We seek to follow best practices in corporate governance in a manner that is in the best interests of our business and our stockholders. We are in compliance with the corporate governance requirements imposed by the Sarbanes-Oxley Act, the SEC and the NYSE and will continue to review our policies and practices to meet ongoing developments in this area.

 

All of our employees, including our Chief Executive Officer (CEO), Chief Financial Officer (CFO), all other senior financial officers and all other executive officers, are required to comply with our Code of Business Conduct and Ethics. You can access our Code of Business Conduct and Ethics by clicking on the “Corporate Governance” link in the “Investors” section of our website at www.frx.com. The Code of Business Conduct and Ethics is also available in print to any requesting stockholder. We post amendments to, and waivers of, our Code of Business Conduct and Ethics, as applicable, on our website.

 

Our Corporate Governance Guidelines reflect the principles by which we operate. From time to time, the Nominating and Governance Committee and the Board review and revise our Corporate Governance Guidelines in response to regulatory requirements and evolving best practices. You can access our Corporate Governance Guidelines by clicking on the “Corporate Governance” link in the “Investors” section of our website at www.frx.com. The Corporate Governance Guidelines are also available in print to any requesting stockholder.

 

The Disclosure, Legal Compliance and Risk Management Committee (the Disclosure Committee) is made up of the following members of senior management: CFO, Chief Commercial Officer, Vice President – General Counsel and Senior Vice President – Research and Development. The primary purpose of the Disclosure Committee is to review and evaluate our disclosure documents, to develop and monitor a program of risk assessment and management and to evaluate legal compliance and compliance with our Code of Business Conduct and Ethics. The Disclosure Committee met five times during the fiscal year ended March 31, 2011. The Disclosure Committee does not have oversight responsibility for financial matters, including financial statements and systems of internal control over financial reporting, which are monitored by the Company’s Audit Committee.

 

We have established a Compliance Committee chaired by our Vice President – Compliance and Chief Compliance Officer. Our Compliance Committee is responsible for overseeing our program for compliance with applicable laws and regulations specific to the pharmaceutical industry. The Compliance Committee includes senior management and senior departmental personnel from various corporate divisions (marketing, contract-customer operations, medical and scientific affairs, sample policy compliance, operations, corporate quality management, internal audit and legal counsel). Other personnel are invited to participate from time to time as specific issues warrant. The Compliance Committee meets approximately every six weeks to review issues related to our Comprehensive Compliance Program, establish and approve compliance policies and provide support, guidance and advice to our Chief Compliance Officer regarding the compliance program.

 

Family Relationships. David Solomon, our Senior Vice President – Corporate Development and Strategic Planning, is the son of Howard Solomon, Chairman of the Board, CEO, President and a director of the Company.

 

Related Persons Transaction Procedures. The Company’s written Code of Business Conduct and Ethics provides that all conflicts of interest, including transactions with Related Persons (as defined in Item 404 of Regulation S-K), are prohibited unless approved by the Company’s Board or a Committee of the Board. In addition, all directors and executive officers are required to annually complete a questionnaire to identify their related interests and are required to notify the Company of changes in that information. These reports are reviewed in the first instance by the Company’s outside counsel. If members of management or the Board become aware of a related person transaction, then with respect to matters other than executive officer compensation, the Audit Committee is responsible for reviewing and approving or ratifying any transaction or series of transactions in which the Company or a subsidiary is a participant, the amount involved exceeds $120,000 and a Related Person has a direct or indirect material interest. The Compensation Committee is responsible for annually reviewing and approving compensation arrangements with executive officers of the Company whose annual compensation exceeds $120,000.

 

The Board held eight meetings during the fiscal year ended March 31, 2011. During fiscal year 2011, each of the directors attended 75% or more of the combined total meetings of the Board and the respective committees on which he or she served. Directors are required to make every reasonable effort to attend the Annual Meeting of Stockholders. All members of the Board attended our 2010 Annual Meeting of Stockholders.

 

The Board believes the interests of all stockholders are best served at the present time through a leadership model with a combined Chairman and CEO position. However, the Board retains authority to amend the Bylaws to separate the positions of Chairman and CEO at any time.

 

Mr. Solomon, the current Chairman and CEO, possesses detailed and in-depth knowledge of the issues, opportunities and challenges facing the Company, and is thus best positioned to develop agendas that ensure that the Board’s time and attention are focused on the most critical matters. His combined role enables decisive leadership, ensures clear accountability and enhances the Company’s ability to communicate its message and strategy clearly and consistently to our stockholders, employees, partners and customers. Furthermore, the Board believes that Mr. Solomon’s experiences as CEO and other insights put him in the best position to provide broad leadership for the Board as it considers strategy and as it exercises its fiduciary responsibilities to its stockholders.

 

The Board has amended its Corporate Governance Guidelines to provide for the position of a presiding director. Mr. Goodman, who was appointed by the Board to the position of presiding director on December 6, 2010, will be responsible for, among other things, presiding at all meetings at which the Chairman is not present, including executive sessions of the independent directors, and apprising the Chairman of the issues considered at such meetings; being available for consultation and direct communication with the Company’s stockholders; calling meetings of the independent directors when necessary and appropriate; and, in consultation with the other independent directors, advising the Chairman as to an appropriate schedule of Board meetings and reviewing and providing the Chairman with input regarding the agenda for Board meetings. In addition, the Board believes that its governance practices support its independent oversight, including having open and direct communication with management, encouraging independent director input on meeting agendas, performing annual evaluations of director performance and holding regular executive sessions. In addition, each independent director has access to the CEO and other Company executives upon request, and may call meetings of the independent directors and may request agenda topics to be added or dealt with in more detail at meetings of the full Board or an appropriate Board committee.

 

In order to assist the Board in overseeing risk management, we use enterprise risk management (ERM), a company-wide initiative overseen by the Disclosure Committee that involves the Audit Committee, management and other personnel, in an integrated effort to identify, assess, prioritize and manage a broad range of risks (e.g., financial, operational, business, reputational, governance and managerial) that may affect our ability to execute on our corporate strategy and fulfill our business objectives. The ERM approach is designed to enable the Board to establish a mutual understanding with management of the effectiveness of the Company’s risk management practices and capabilities, to review the Company’s risk exposure and to elevate certain key risks for discussion at the Board or Audit Committee level.

 

While the Board has the ultimate oversight responsibility for the risk management process, various committees of our Board and the Disclosure Committee also have responsibility for risk management. Our

Board is advised by the committees of significant risks and management’s response via periodic updates. The Audit Committee oversees our financial risk exposures, including monitoring the integrity of our financial statements, financial reporting process and systems of internal controls, accounting and legal compliance and the independence and qualifications of our independent registered public accounting firm, and receives an annual internal controls assessment report from our independent registered public accounting firm. Additionally, as discussed below in “Executive Compensation — Compensation Discussion and Analysis” and “Executive Compensation — What the Compensation Program is Designed to Reward”, the Compensation Committee attempts to design compensation standards for the Company’s personnel in a way that discourages behavior that may lead to excessive risk-taking. Finally, as discussed above, the Disclosure Committee is responsible for developing and monitoring a program of risk assessment and management and overseeing our ERM program.

 

The Board has affirmatively determined that the following directors and director nominees have no material relationship with us and are independent within the meaning of the NYSE definition of “independence”: Nesli Basgoz, M.D., William J. Candee, III, George S. Cohan, Christopher J. Coughlin, Dan L. Goldwasser, Kenneth E. Goodman, Gerald M. Lieberman, Lester B. Salans, M.D., Brenton L. Saunders and Peter J. Zimetbaum, M.D. To assist in making the independence determination, the Board has adopted Director Qualification Standards as part of our Corporate Governance Guidelines. The Director Qualification Standards satisfy the NYSE independence requirements, and a copy of these standards is attached to this Proxy Statement as Appendix A. In determining that Dr. Zimetbaum was independent within the meaning of the NYSE definition of “independence”, the Board considered the Consultant Services Letter Agreement that Dr. Zimetbaum and the Company entered into on October 21, 2010, pursuant to which Dr. Zimetbaum may provide consulting services to Forest on a project-by-project basis relating to the evaluation of products and potential product opportunities. The Agreement provides that the total annual fees payable to Dr. Zimetbaum for such services cannot exceed $100,000 per annum. Independent directors receive no compensation from us for service on the Board or the Committees other than directors’ fees and non-discretionary grants under our 2007 Equity Incentive Plan.

 

As required by the NYSE listing standards, our non-management directors meet in executive session at which only non-management directors are present on a regularly scheduled basis. Historically, our non-management directors chose the presiding director for each meeting in executive session by majority vote on a meeting-by-meeting basis. However, as discussed above, with Mr. Goodman’s appointment as presiding director, Mr. Goodman will now preside over each meeting of the independent directors in executive session (see “Board Leadership Structure” above at Page 19).

 

You may contact the entire Board, any Committee, the non-management directors as a group or any individual director by calling our Audit Committee Hotline at 1-800-461-0825. An outside vendor collects all reports or complaints and delivers them to the Audit Committee. The Audit Committee will forward all correspondence to the appropriate director or group of directors. You are also welcome to communicate directly with the Board at the Annual Meeting of Stockholders.

 

The Board has four standing committees: the Audit Committee, the Compensation Committee, the Nominating and Governance Committee and the Board Compliance Committee. All of the members of the Audit Committee, the Compensation Committee, the Nominating and Governance Committee and the Board Compliance Committee are independent directors within the meaning of the NYSE Listing Standards and Securities Exchange Act of 1934, as amended (the Exchange Act), Rule 10A-3. Each of the committees has

the authority to retain independent advisors and consultants, with all fees and expenses to be paid by Forest. The Board-approved charters of the Audit Committee, the Compensation Committee and the Nominating and Governance Committee are available on our website by clicking on the “Corporate Governance” link under the “Investors” section at www.frx.com. The charters are also available in print to any requesting stockholder.

 

Audit Committee. For the fiscal year ended March 31, 2011, the Audit Committee consisted of William J. Candee, III (the Chairman), Dan L. Goldwasser and Lester B. Salans, M.D. The Board has determined that Mr. Goldwasser qualifies as an “audit committee financial expert” for purposes of the federal securities laws.

 

The Audit Committee’s primary responsibilities are to: (i) oversee our financial reporting principles and policies and internal control systems, including review of our quarterly and annual financial statements; (ii) review and monitor the performance and independence of our independent registered public accounting firm and the performance of the internal auditing department; (iii) provide an open avenue of communication among the independent registered public accounting firm, financial and senior management, the internal audit department and the Board; and (iv) appoint (subject to stockholder ratification), evaluate, compensate and, where appropriate, terminate and replace our independent registered public accounting firm. The Audit Committee held seven meetings during fiscal year 2011.

 

Compensation Committee. The Compensation Committee is composed of Messrs. Candee, Cohan, Goldwasser (the Chairman) and Dr. Salans. Pursuant to the Compensation Committee Charter, the Committee is responsible for (i) discharging the Board’s responsibilities relating to compensation of our executive officers and (ii) producing an annual report on executive compensation for inclusion in our Proxy Statement in accordance with applicable rules and regulations. During the fiscal year ended March 31, 2011, the Compensation Committee held one meeting at which the Committee made recommendations concerning compensation for our executive officers for the 2011 calendar year and granted stock options and stock awards under the 2007 Equity Incentive Plan. The Committee approved all other equity awards granted during the year at regularly scheduled Board meetings.

 

Nominating and Governance Committee. The Nominating and Governance Committee is composed of Messrs. Candee (the Chairman), Cohan, Goldwasser and Dr. Salans. The Committee’s responsibilities include (i) identifying individuals qualified to become Board members consistent with criteria approved by the Board and recommending that the Board select the director nominees for the next Annual Meeting of Stockholders; (ii) developing and recommending to the Board the Corporate Governance Guidelines; and (iii) overseeing evaluation of the Board and management. The Nominating and Governance Committee held one meeting during fiscal year 2011.

 

Board Compliance Committee. The Board Compliance Committee is composed of Lester B. Salans, M.D. (the Chairman), Peter J. Zimetbaum, M.D. and Nesli Basgoz, M.D. The Committee’s responsibilities include (i) reviewing and overseeing matters relating to our compliance with Federal health care program requirements, FDA requirements and the obligations imposed by the Corporate Integrity Agreement dated September 15, 2010 that we entered into with the Office of Inspector General of the U.S. Department of Health and Human Services; (ii) appointing, compensating, retaining (or terminating) and overseeing the work of an independent Compliance Expert; and (iii) providing an additional avenue of communication among Compliance Department personnel, including the Chief Compliance Officer, the Compliance Committee described at Page 17 of this Proxy Statement, our management and the Board. The Board Compliance Committee was formed in December 2010 and held three meetings during fiscal year 2011.

 

The Nominating and Governance Committee has established a process for identifying and evaluating nominees for director. The Nominating and Governance Committee believes that its process for identifying and evaluating nominees is designed to produce nominees that possess the educational, professional, business

and personal attributes that are best suited to further Forest’s purposes. The Nominating and Governance Committee will consider nominees recommended by stockholders in accordance with our Bylaws as well as those recommended by management or consultants retained by the Nominating and Governance Committee. Under our Bylaws and as described in this Proxy Statement under the heading, “What is the deadline to propose actions for consideration at next year’s Annual Meeting of Stockholders?”, any interested person may recommend a nominee by submitting the nomination within the timeframe specified by our Bylaws, together with the information and materials required by our Bylaws, to the Company’s Secretary at Forest Laboratories, Inc., Attention: Corporate Secretary, 909 Third Avenue, New York, New York 10022. All recommended candidates submitted in accordance with our Bylaws will be considered using the criteria set forth in our Corporate Governance Guidelines.

 

The Nominating and Governance Committee will consider, among other factors, the following to evaluate recommended nominees:

 

 

The Nominating and Governance Committee annually reviews the individual expertise and skills of the directors as well as the composition of the Board as a whole. The Corporate Governance Guidelines expressly provide for the Board to consider the configuration of the Board in evaluating qualifications of potential Board members. In this regard, the Nominating and Governance Committee strives to nominate directors with diverse business and professional experience and skills relevant to the Company’s current and anticipated needs. The Nominating and Governance Committee does not follow any fixed ratio or formula to determine the appropriate mix, but rather uses its judgment to seek directors whose attributes and experience taken as a whole will contribute to the high standards of Board service at the Company.

 

Please also see “Proposal 1 – Election of Directors” for additional information concerning our selection of director nominees.

 

 

 

 

Set forth below is certain biographical information concerning our executive officers who are not also directors:

 

Elaine Hochberg is Executive Vice President and Chief Commercial Officer of the Company since December 31, 2010. Prior thereto, Ms. Hochberg served as our Senior Vice President – Marketing from December 1999 through December 2010 and has also served as our Chief Commercial Officer since December 2007. Ms. Hochberg joined us in June 1997 as Vice President – Marketing of our wholly-owned subsidiary Forest Pharmaceuticals, Inc. In February 1998, she was promoted to Vice President – Marketing of the Company. Prior to joining us in 1997, Ms. Hochberg was Assistant Vice President – Marketing at Wyeth-Lederle Laboratories.

 

Francis I. Perier, Jr. is Executive Vice President Finance and Administration and CFO of the Company since December 31, 2010. Prior thereto, Mr. Perier served as our Senior Vice President – Finance from September 2004 through December 2010 and has also served as our CFO since September 2004. From March 2004 until joining us in September 2004, Mr. Perier was Vice President – Finance – Operations Planning – Americas Medicines at Bristol-Myers Squibb. For eight years prior to March 2004, Mr. Perier served in senior financial positions at Bristol-Myers Squibb including four years as Vice President – Finance, Planning, Business Development and Information Technology at its ConvaTec Division. Prior to that, Mr. Perier had been a partner at Deloitte & Touche, LLP.

 

Marco Taglietti, M.D. is Senior Vice President Research and Development of the Company and President, Forest Research Institute, Inc. since December 31, 2010. Prior thereto, Dr. Taglietti served as our Vice President – Research and Development since December 2008. Dr. Taglietti joined Forest in August 2007 as Executive Vice President – Research and Development and Chief Medical Officer of our wholly-owned subsidiary Forest Research Institute, Inc. Prior to joining us, Dr. Taglietti was Senior Vice President and Head of Global Research and Development at Stiefel Laboratories for three years. Prior to that, Dr. Taglietti was at Schering-Plough for twelve years in positions of increasing responsibilities including Vice President – Worldwide Clinical Research for Anti-Infectives, Oncology, CNS, Endocrinology and Dermatology.

 

David Solomon is Senior Vice President – Corporate Development and Strategic Planning since December 31, 2010. Prior thereto, Mr. Solomon served as our Vice President – Business Development and Strategic Planning from December 2007 through December 2010. From June 2006 through December 2007, Mr. Solomon served as our Vice President – Business Development. Mr. Solomon joined the Company in 2001.

 

The Compensation Committee of the Board (the Committee) is responsible for setting and administering the policies that govern executive salaries, cash bonus awards and equity incentive awards. The Committee reviews and approves, or in some cases recommends for the approval of the full Board, the annual compensation, including equity grants, for Forest’s executive officers, including Howard Solomon, Chairman of the Board, CEO and President; Lawrence S. Olanoff, M.D., Ph.D., our former President and COO; Elaine Hochberg, Executive Vice President and Chief Commercial Officer; Francis I. Perier, Jr., Executive Vice President Finance and Administration and CFO; Marco Taglietti, M.D., Senior Vice President Research and Development and President of Forest Research Institute, Inc.; and David Solomon, Senior Vice President – Corporate Development and Strategic Planning (collectively, the Named Executive Officers). The Committee operates pursuant to a charter that further outlines the Committee’s specific authority, duties and responsibilities and may, pursuant to its charter, form and delegate authority to subcommittees when appropriate.

 

We seek to closely align the interests of our Named Executive Officers with the interests of our stockholders. Our compensation programs are designed to reward our Named Executive Officers for their contributions to the Company’s achievements aimed at long-term strategic management and enhancement of stockholder value, while at the same time avoiding the encouragement of unnecessary or excessive risk-taking. Our Named Executive Officers’ total compensation is composed of a mix of base salary, annual cash incentive bonus and long-term incentive equity awards that include both stock options and restricted stock grants.

 

Effective December 31, 2010, Dr. Lawrence S. Olanoff retired from his post of President and COO of the Company. Dr. Olanoff continues to serve as a Director and a Senior Scientific Advisor to the Company. Also, as further described below in the Compensation Discussion and Analysis section, several executive officers of the Company were promoted effective December 31, 2010.

 

Our fiscal 2011 performance, including our performance relative to our peers, along with the individual performance of our executive officers, served as key factors in assessing compensation established for calendar 2011, including as follows:

 

 

 

 

In fiscal 2011, we continued to adjust our compensation programs to further align the interests of our Named Executive Officers with our stockholders’ interests by allocating a larger portion of executive officer compensation to cash and equity incentive compensation. We allocated further incremental compensation, which in prior years would have been paid as base salary, to the category of equity awards. This continuing trend has also served to more closely align the Company’s compensation structure to that of the other companies in the peer group.

 

The basis for our compensation program in fiscal 2011 is built upon the Company’s compensation governance framework and our overall pay-for-performance philosophy, which are demonstrated by:

 

 

We encourage you to read this Compensation Discussion and Analysis for a detailed discussion and analysis of our executive compensation program, including information about the fiscal 2011 compensation of the Named Executive Officers.

 

The Company’s compensation program, including its executive compensation program, is designed to provide compensation packages that attract, motivate and retain outstanding executive personnel. The Committee structures compensation packages by applying the following general principles which can be adapted to address the different circumstances of the Company from year to year:

 

 

 

The compensation program for the Company’s executives is designed to reward their contributions to the Company’s achievements aimed at long-term strategic management and enhancement of stockholder value. In order to measure the contributions of the executive officers, the Committee reviews reports prepared by management and a report prepared independently by the Chairman of the Committee relating to corporate performance during the prior fiscal year. These reports specifically focus on performance of the Company’s promoted products, strategic acquisitions and management of the Company’s product pipeline, protection and management of the Company’s intellectual property portfolio, as well as reviews of financial information, including changes in revenues and earnings per share during the prior fiscal years. The Committee believes that its review process enables it to give appropriate weight to the Company’s financial results as well as intangible achievements which may not be directly measurable in the current year but are geared toward the future growth of the Company in its evaluation of executive officer compensation. The report of the Chairman of the Committee also includes a comparative analysis of the Company’s compensation practices with those of other companies within its peer group, which enables the Committee to evaluate whether its compensation program is competitive within its industry. In addition, this year the Committee continued to focus on adjusting allocations of compensation among the various elements to augment the at-risk and equity portions of

executive officer compensation which are the elements designed to reward and promote the creation of long-term value and thereby discourage behavior that leads to excessive risk.

 

As noted above, as part of its overall review of executive compensation, the Committee conducts a comparative analysis of compensation levels paid by a peer group of pharmaceutical companies to evaluate the structure and the competitive strength of the Company’s compensation program. The Chairman of the Committee selected a peer group of pharmaceutical companies based on his review of all publicly traded pharmaceutical companies with revenues ranging from approximately $1 billion to $10 billion for which there was available compensation data from proxy materials. The Committee also reviewed a survey of compensation practices in the pharmaceutical industry prepared by Towers Watson. The companies which made up the Company’s peer group for fiscal year 2011 were: Allergan, Inc., Biogen Idec Inc., Celgene Corporation, Cephalon, Inc., Endo Pharmaceuticals Solutions Inc., Genzyme Corporation, Gilead Sciences, Inc., King Pharmaceuticals, Inc., Mylan Inc. and Watson Pharmaceuticals, Inc. For purposes of assessing the compensation for Named Executive Officers other than the CEO and COO, the Committee also considered compensation levels at certain larger pharmaceutical companies (Abbott Laboratories, Amgen Inc., AstraZeneca plc, Bristol-Myers Squibb Company, Eli Lilly and Company, Johnson & Johnson, Merck & Co., Inc., Roche Group, Sanofi-Aventis SA and Pfizer Inc.) with which the Company competes for executive talent.

 

The two principal elements comprising executive compensation are cash and equity. The cash element is divided into base salary and annual bonus and the equity element is divided into grants of stock options and restricted stock awards. Both components of the equity element of the executive officer compensation (stock options and restricted stock awards) are subject to a risk of forfeiture. These elements complement each other and give the Committee flexibility to create compensation packages that provide short and long-term incentives and are competitive, yet in line with the Company’s approach to compensation. Such approach allows the executive sufficient cash to be competitive with other employment opportunities, while at the same time providing the executive with a strong incentive to build long-term stockholder value by aligning the executive’s interests with those of our stockholders.

 

This past year, the Committee continued its focus on how senior executive officer compensation is structured. The Committee believes that as an employee becomes more senior, his or her decisions and performance have a more direct and greater impact on the long-term success of the Company, and therefore his or her compensation should be more closely tied to the Company’s performance. Accordingly, in making its recommendations and decisions regarding executive officer compensation, the Committee continued the trend of reducing amounts allocated to base salary increases and increased the portion of compensation allocated to “at-risk” and equity compensation. The Committee’s analysis of executive officer compensation allocations by companies in the peer group continued to provide further support for using a more heavily weighted at-risk and equity based compensation structure for senior management.

 

Base Salary. Base salary is the primary fixed element in the Company’s compensation program. Base salary is intended to provide an element of certainty and security to the executive officers on an ongoing basis. Executive salaries are reviewed on an annual basis (with adjustments generally taking effect on January 1 of each year), as well as at the time of a promotion or other material change in responsibilities. Increases in salary are based on an evaluation of the individual’s performance and level of pay compared to the salaries paid to persons in similar positions by pharmaceutical companies in this year’s peer group, and have generally been in the lower range of such peer group data. The Committee also considers the percentages used by management to determine annual base salary increases for the Company’s non-executive employees when

determining the appropriate percentage increases to be paid to its executives, as well as the percentage of total compensation and total cash compensation that base salary represents.

 

Bonus. The annual cash bonus program is at-risk compensation designed to reward the Company’s executive officers for achievement of key operational goals that the Committee believes will provide the foundation for creating long-term stockholder value. The Committee does not use a formula to determine bonuses but rather reviews performance during the year, taking into account significant accomplishments, revenues and changes in the Company’s earnings per share. As indicated above, the Committee believes that as executives become more senior at the Company, the percentage of their cash compensation represented by the bonus (the at-risk component of cash compensation) should increase since the decisions and performance of senior employees have both a short-term and long-term impact on Company performance. In addition to the foregoing, as is the practice in the context of salary reviews, the Committee also compares bonus payments to executive officers of companies in the Company’s peer group, considering both the amounts of the bonus payments and the percentage of total cash compensation represented by such amounts. A review of companies in the peer group showed that total cash compensation for CEOs in the peer group substantially exceeded total cash compensation paid to Mr. Solomon, but total cash compensation to Dr. Olanoff substantially exceeded total cash compensation for the next highest compensated executives in the peer group. With respect to Dr. Olanoff’s compensation, the Committee noted that few of the peer group companies had an officer designated as the COO, and therefore the comparison was less relevant. The review also showed that total cash compensation to officers other than the CEO and the COO was comparable. The peer group review also provided insight into the allocation of cash compensation between base salary and bonus. In particular, the peer group review further revealed that average bonus amounts paid to executive officers at such companies ranged from 40% to 110% (the latter, in the case of the CEO) more than the bonuses paid by the Company. Accordingly, the Committee recommended continuance of the process begun last year and awarded increases in bonus payments which would move the pay structure for the Company’s executive officers more in line with both its principles and industry standards.

 

Given the long-term nature of the achievement of key objectives in the pharmaceutical business, the Committee believes that incentivizing executives to focus on long-term performance is of particular importance. The Committee believes that one of the most effective ways to accomplish this objective is to provide executive officers with equity awards, the value of which is dependent upon the performance of the Company’s stock. Equity ownership also aligns the interests of executive officers with those of their fellow stockholders since its value is dependent on the value of the Company’s stock. Equity awards are typically subject to vesting or forfeiture provisions which operate to help encourage employees to maintain their employment with the Company. For these reasons, equity compensation is the largest element of the total annual compensation of the Named Executive Officers.

 

Stock Awards. The Committee issues stock awards to encourage achievement of long-term performance goals, since the value of this type of compensation increases in direct proportion to increases in the value of the Company’s stock. In addition, this type of award is subject to a time based vesting schedule as described below, and thus serves to reward performance of the executive officer over several periods as opposed to over only one period and further serves as a retention tool. Historically, the portion of compensation allocated to stock awards was substantially less than that allocated by other companies in the peer group. This year, as a continuation of the process of shifting a larger portion of executive officer compensation to various forms of incentive compensation, including equity, the Committee allocated incremental compensation, which in prior years would have been paid as base salary, to the category of stock awards. This change also served to continue the Committee’s process, to be implemented over the next few years, of more closely aligning the Company’s compensation structure to that of the other companies in the Company’s peer group.

 

Stock Options. In addition to stock awards, the Committee awards stock options as an incentive to create long-term stockholder value. The award of stock options achieves this purpose since the options only provide value to the executive over time as and if there is growth in the market price of the Company’s shares.

Similar to stock awards, stock options also vest over time and thus reward sustained performance by executive officers and discourage unnecessary risk. Additionally, because the value of stock option awards is entirely dependent upon long-term increases in the price of the Company’s stock, the Committee believes that the percentage of total equity compensation represented by stock options should increase as executives become more senior at the Company in order to further incentivize senior executives to take actions intended to increase stockholder value over the long-term.

 

Equity awards granted to the Company’s CEO, Executive Vice President and Chief Commercial Officer, and Executive Vice President Finance and Administration and CFO vest as follows: options vest in full on the six-month anniversary of the grant date, and the restrictions applicable to stock awards lapse as to 25% of the shares covered by the award on the six-month anniversary of the grant date, as to 50% of the shares covered by the award on the first anniversary of the grant date and as to the remaining 25% of the shares covered by the award on the second anniversary of the grant date.

 

Stock options awarded to other executive officers generally vest as follows: 15% of the shares underlying the option vests on each of the first four anniversaries of the date of grant and the remaining 40% vests on the fifth anniversary. Stock awards to such officers generally vest as to 25% of the shares on each of the first four anniversaries of the date of grant. The Committee believes these vesting schedules contribute significantly to the retention of the Company’s executives, because they must remain employed with the Company for a specific period of time before they can realize value from the equity awards.

 

All equity grants to executive officers are approved by the Committee. Except for equity grants which are approved by the Committee at special meetings held in connection with a newly hired officer or those related to promotions which are approved by the Committee at regularly scheduled meetings, such equity grants are approved at the Committee’s December meeting that is scheduled at the beginning of each fiscal year. The exercise price of each stock option awarded is the average of the high and low prices of a share of the Company’s common stock on the NYSE on the date of the option grant. The Committee does not backdate stock options, grant options retroactively, reprice options or grant options with regard to the announcement of favorable or unfavorable information. The Company does not currently have guidelines or requirements relating to ownership of its stock by executive officers because it believes that the equity awards included in compensation provide sufficient ability and encouragement to the executive officers to own the Company stock.

 

The Company has adopted a “clawback” policy, which is set forth in our Corporate Governance Guidelines. The policy provides that, in addition to any other remedies that may be available to the Company, the Company may recover (in whole or in part) any bonus, incentive payment, commission, equity award or other compensation received by an executive officer of the Company that is or was based on any financial results or operating metrics that were impacted by such executive officer’s knowing or intentional fraudulent or illegal conduct.

 

The Committee meets annually in December to determine compensation levels for the next calendar year and to award bonuses for performance during the concluding year. In determining and making recommendations regarding compensation, the Committee evaluates the performance achievements and strategic accomplishments of the individual and of the Company during the year from the perspectives of both long-term growth and current results. In addition, the Committee reviews management’s recommendation for compensation of the executive officers other than the CEO and COO. The Committee continues to believe that a review of the specific accomplishments of the officers during the year as well as a review of financial measures is the best method to evaluate the value contributed by its officers during the year.

In December 2010, the Chairman of the Committee circulated to the members of the Committee a report highlighting some of the factors he considered relevant to the Committee’s determination of executive officer compensation for the calendar year 2011. As described above, the report included data from a survey of executive compensation in the pharmaceutical industry prepared by compensation consultants from Towers Watson and a report from management regarding the Company’s principal achievements during calendar year 2010.

 

The Committee specifically reviewed and discussed the findings set forth in the Chairman’s report and took note of the accomplishments of the Company during calendar year 2010. The Committee took note of the sales and marketing efforts that resulted in the continued growth in sales of the Company’s promoted products, in particular substantial growth in the sales of Bystolic and Namenda. The Committee acknowledged that further growth in sales is expected in calendar 2011 with the introduction of Teflaro, the Company’s ceftaroline compound which was approved by the FDA in October 2010. The Committee also took note of the licensing of the worldwide (other than in the U.S., Canada and Japan) rights to Teflaro to AstraZeneca, the acquisition of further rights to avibactam (a beta-lactamase inhibiter co-owned with AstraZeneca) from Novexel S.A., including the full U.S. rights to combinations of avibactam with ceftaroline and ceftazidime, and successful completion of the license of Bystolic and Savella to Janssen Pharmaceutica NV (a subsidiary of Johnson & Johnson) for commercialization in Canada. Reviewing management’s further development of the Company’s product pipeline, the Committee noted the successful completion of an in-license of the GRT6005 and GRT6006 compounds from Grünenthal GmbH being developed for the treatment of chronic pain and the acquisition of rights from TransTech Pharma, Inc. to a portfolio of glucokinase activator compounds being developed for the treatment of type II diabetes products. The Committee also acknowledged that the development programs for dutogliptin and radiprodil were terminated during the year and reviewed the status of various other compounds in clinical development (specifically noting the successful completion of clinical tests on a number of the Company’s pipeline products).

 

The Committee considered the data contained in the Committee Chairman’s report, which indicated that the Company’s total compensation levels were generally on par with, if slightly less than, the levels paid by comparable pharmaceutical companies to officers holding comparable positions other than compensation levels applicable to (i) the Company’s CEO, which were substantially less than those paid to CEOs of other companies in the peer group and (ii) the Company’s COO, which were somewhat higher than those paid to the second highest paid officers of the companies in the peer group (the Committee noted, however, that due to the differences in job description between such officers and the Company’s COO, this may not represent a valid comparison). The Committee also noted that the allocations of compensation differed from the allocations made by companies in the peer group. Specifically, the percentage of total cash compensation represented by the cash bonus paid to the Company’s executives was much lower than the percentage of cash compensation represented by cash bonuses at peer group companies. To address this disparity and in keeping with the Committee’s continuing policy to increase the portion of each executive’s compensation which consists of incentive and at-risk compensation as such executive’s responsibilities increase, the Committee decided to increase the base salary for executive officers not receiving a promotion by only modest amounts and to allocate incremental cash compensation awarded for the year to the bonus and equity portions of the officers’ compensation. Those executives receiving a promotion this year received more significant base salary increases commensurate with their assumption of additional job responsibilities.

 

Chief Executive Officer. Following its discussion and analysis of the above factors, with specific note of the Company’s performance during the year and recognizing that the total compensation paid to Mr. Solomon is significantly less than the total compensation received by CEOs from the Company’s peer group, the Committee approved the following compensation for Mr. Solomon: an increase in base salary for calendar year 2011 of approximately 3.85% to $1,350,000 and a cash bonus of $1,060,000 for the 2010 calendar year (the 2010 cash bonus), which amount is 81.5% of 2010 base salary, an increase from the 71% bonus paid by the Company in the previous year but still substantially less than the average bonus of 150% of base salary paid to CEOs of companies

in the peer group. With respect to long-term incentive compensation, the Committee granted Mr. Solomon stock options covering 150,000 shares and stock awards covering 125,000 shares.

 

Chief Operating Officer. Based on the Committee’s discussion and analysis of the above factors and taking into consideration Dr. Olanoff’s pending retirement (effective December 31, 2010) and his contribution during the preceding year as President and COO, the Committee approved a 2010 cash bonus of $700,000. Due to his resignation, Dr. Olanoff was not awarded any other compensation.

 

Other Named Executive Officers. Following the Committee’s discussion and analysis of the above factors, and specifically taking note of management’s recommendations, the Committee reviewed and recommended the following compensation with respect to Ms. Hochberg, Mr. Perier, Dr. Taglietti and Mr. David Solomon: (i) Ms. Hochberg, who was promoted on December 31, 2010 from the position of Senior Vice President – Marketing and Chief Commercial Officer to the position of Executive Vice President and Chief Commercial Officer, received an increase in base salary for calendar year 2011 of 5.5% to $676,783 and a 2010 cash bonus of $375,000, equaling 58.5% of her 2010 base salary; with respect to long-term incentive compensation, Ms. Hochberg was granted stock options covering 75,000 shares and stock awards covering 55,000 shares; (ii) Mr. Perier, who was promoted on December 31, 2010 from the position of Senior Vice President – Finance and CFO to the position of Executive Vice President Finance and Administration and CFO, received an increase in base salary for calendar 2011 of 5.0% to $626,325 and a 2010 cash bonus equaling 55.0% of his 2010 base salary, or $328,000; with respect to long-term incentive compensation, Mr. Perier was granted stock options covering 75,000 shares and stock awards covering 50,000 shares; (iii) Dr. Taglietti, who was promoted on December 31, 2010 from the position of Vice President – Research and Development and President of the Forest Research Institute to the position of Senior Vice President Research and Development and President of the Forest Research Institute, received an increase in base salary for calendar 2011 of approximately 5.5% to $573,287 and a 2010 cash bonus of $300,000, equaling 55.2% of his 2010 base salary; with respect to long-term incentive compensation, Dr. Taglietti was granted stock options covering 60,000 shares and stock awards covering 45,000 shares; and (iv) Mr. Solomon, who was promoted on December 31, 2010 from the position of Vice President – Business Development and Strategic Planning to Senior Vice President – Corporate Development and Strategic Planning, received an increase in base salary for calendar 2011 of 15.0% to $440,000 and a 2010 cash bonus of $210,000, equaling 54.9% of his 2010 base salary; with respect to long-term incentive compensation, Mr. Solomon was granted stock options covering 55,000 shares and stock awards covering 45,000 shares.

 

The Committee concluded that the above figures were reasonable given the successful operations, the significant growth of the Company’s promoted products, the completion of product acquisitions and successful out-licensing strategies by the Company and the progress of the Company’s research and development activities during the concluding year and the comparable figures for the equivalent executive officers at the companies included in the Towers Watson survey and the peer group selected by the Chairman of the Committee. The compensation approved for each Named Executive Officer is more specifically set forth in the Summary Compensation Table on Page 35 of this Proxy Statement.

 

Other Executive Officers. The Committee, along with Mr. Howard Solomon and Dr. Olanoff, also reviewed and approved merit increases to base salary, cash bonuses and equity awards for the other executive officers based on the criteria and pursuant to the process described above. Specifically, they focused on each proposal for base salary, bonus and equity award grants.

 

Each of the benefits described below was chosen to support the Company’s objective of providing a competitive pay package. The Company does not offer guaranteed retirement or pension plan benefits. Instead, it provides its executive officers with the opportunity to accumulate sufficient wealth to provide for their own retirement income through the equity awards they are granted and the post retirement benefits described below. The post retirement benefits described in this Section, other than benefits offered under the Deferred

Compensation Plan, have been historically provided by the Company pursuant to contractual obligations between the Company and certain employees, and the substantive terms and conditions of these arrangements have continued materially unchanged over the years. None of these benefits was materially changed by the Committee during the 2011 fiscal year.

 

Severance Payments. The Company may terminate each of its Named Executive Officer’s employment at any time with or without cause, or by reason of death or disability. Additionally, each Named Executive Officer may resign at any time without good cause. In order to attract talented executive personnel and be consistent with peer company norms, the Company has included from time to time in its offer letters with certain executive officers a severance guaranty for the three-year period commencing as of the executive’s start date or, if longer, a one year period following his or her termination of employment, limited to severance and certain benefits. The Committee believes that such guaranteed severance payments are appropriate to provide security to new officers who are leaving other employment to join the Company. Dr. Olanoff, Mr. Perier and Dr. Taglietti joined the Company pursuant to offer letters which included severance guaranties. Under their offer letters, Mr. Perier and Dr. Taglietti are currently entitled (and until his resignation, Dr. Olanoff was entitled) to guaranteed severance payments for a one year period following a termination of employment, a bonus for the year in which the termination of employment occurs equal to the greater of the last bonus that such officer received from the Company or 40% of such officer’s salary target, and continued medical and dental health care coverage for such officer and any eligible family members until the earlier of the expiration of the one year period or the date such officer obtains alternate coverage. The guaranty is triggered if the executive is terminated by the Company without Cause or resigns for Good Reason (each as defined in the relevant offer letter). A more detailed description of such severance arrangements (including the amounts payable thereunder) can be found under the heading “Post-Termination Benefits and Change in Control Payments” on Page 41 of this Proxy Statement.

 

Deferred Compensation. The Company maintains a nonqualified Deferred Compensation Plan for the benefit of certain highly compensated employees, including its Named Executive Officers. Such plans are common within the Company’s competitive peer group. Under this plan, full-time salaried employees who have an annual base salary of at least $150,000 may defer up to 50% of their annual base salary and up to 100% of their annual bonuses. Deferred amounts may be invested among several investment programs at the participant’s option. Deferred amounts are not subject to federal or state income tax until a participant withdraws amounts from the plan. The Company does not match any of these funds. Further information on the deferred compensation payable to its Named Executive Officers can be found under the heading “Nonqualified Deferred Compensation” on Page 40 of this Proxy Statement.

 

Retiree Medical Benefits. On December 1, 1989, the Board authorized the grant of certain lifetime medical benefits to certain senior executive officers and their spouses upon the completion of ten years of service by such officers. The benefit was subsequently discontinued and the only executive officer currently employed by the Company eligible for such benefit is Mr. Howard Solomon. This benefit is further described under the heading “Benefits Continuation Agreements” on Page 41 of this Proxy Statement.

 

Change in Control Agreements. The Company has entered into change in control agreements with several key employees, including each of its Named Executive Officers. Each individual covered by such an agreement has made a significant contribution to the Company and has knowledge and understanding of the Company and its operations which would be important to maintaining continuity of operations in the event of a change in control. Each agreement becomes effective only upon the occurrence of a defined change in control and provides for the executive’s continued employment with the Company and its subsidiaries for the three-year period following such change in control. Each agreement sets forth the compensation and benefits arrangements payable during such period, including severance benefits payable to the executive in a lump sum in connection with a termination by the Company without Cause or by the executive for Good Reason or Adequate Reason (as such terms are defined in the applicable agreement) or in connection with a termination of the agreement by the Company’s successor upon a change in control.

 

These agreements benefit the Company and its stockholders by enabling management to evaluate and support potential transactions that might be beneficial to stockholders without regard to the potential impact on their own job security or earned benefits. Additionally, the agreements provide for continuity of management in the event of a change in control. In calendar year 2008, these agreements were formally amended with the intention that they would comply with Section 409A of the Internal Revenue Code which may impose additional taxes on executive officers for certain types of deferred compensation that are not in compliance with Section 409A. These agreements are described in further detail under the heading “Change in Control” on Page 42 of this Proxy Statement.

 

Perquisites. The Company provides certain executive officers, including the Named Executive Officers, with certain perquisites that the Committee believes are reasonable and consistent with the Company’s overall compensation program. The cost of the perquisites to the Company for the fiscal year ended March 31, 2011 is set forth in the “Summary Compensation Table” on Page 35 of this Proxy Statement under the heading “All Other Compensation” and is described further in footnote 3 to the table. The Committee does not believe that the perquisites provided to executive officers form a material part of their compensation. The Company does not provide loans to executive officers. The Committee periodically reviews the levels of perquisites and other personal benefits provided to the executive officers.

 

Section 162(m) of the Internal Revenue Code generally limits the deductibility of compensation (other than qualified performance-based compensation) in excess of $1,000,000 paid in a taxable year to a company’s chief executive officer and the four other most highly compensated executive officers. The Company considers the impact of this deductibility limitation on its compensation program, but recognizes that there may be cases in which authorized compensation exceeds the limits contemplated in the Internal Revenue Code Section 162(m).

 

Current accounting rules, including Financial Accounting Standards Board Accounting Standards Codification Topic 718 (FASB ASC 718), “Compensation-Stock Compensation”, require the Company to record as an expense the estimated fair market value of stock option grants and stock awards, which reduces the Company’s reported profits. The Committee considers this expense when determining the types and values of equity awards to be granted to employees, including the Named Executive Officers.

 

We have reviewed and discussed with management the Compensation Discussion and Analysis to be included in the Company’s 2011 Stockholder Meeting Schedule 14A Proxy Statement, filed pursuant to Section 14(a) of the Securities Exchange Act of 1934 (the Proxy). Based on the reviews and discussions referred to above, we have recommended to the Board of Directors that the Compensation Discussion and Analysis referred to above be included in the Proxy.

 

Compensation Committee

Dan L. Goldwasser (Chairman)

William J. Candee, III

George S. Cohan

Lester B. Salans, M.D.

 

 

The following tables summarize our Named Executive Officer and non-employee director compensation as follows:

 

 

 

 

 

 

 

 

 

The following table sets forth compensation for each of our Named Executive Officers for each of the fiscal years ended March 31, 2011, 2010 and 2009 during which such person qualified as a Named Executive Officer.

 

 

 

 

 

 

The following table sets forth certain additional information regarding grants of plan-based awards to our Named Executive Officers for the fiscal year ended March 31, 2011:

 

 

 

 

Narrative Addendum to the Summary Compensation Table and Grants of Plan-Based Awards

 

Equity Plans

 

The only long-term incentive compensation plan pursuant to which we presently grant equity awards is our 2007 Equity Incentive Plan (the Equity Plan). Pursuant to the Equity Plan, employees, including the Named Executive Officers, may be granted options to purchase shares of common stock, stock awards, stock appreciation rights and stock equivalent units (the Awards). The exercise price of all options, including Incentive Stock Options (ISOs) as defined by Section 422 of the Internal Revenue Code of 1986 (the Code), is the fair market value of the shares on the grant date. In fiscal 2011, we granted only restricted stock awards and stock options. All of our employees, our subsidiaries’ employees and our non-employee directors are eligible to receive Awards under the Equity Plan. The Equity Plan provides that a Committee composed of no fewer than three (3) members of the Board, each of whom meets the definition of “outside director” under the provisions of Section 162(m) of the Code and the definition of “non-employee director” under the provisions of the Exchange Act or rules and regulations promulgated thereunder, shall administer the Equity Plan and determine which employees are granted Awards and the number of shares subject to each Award. The non-employee directors are eligible for automatic grants of stock awards and stock options as further described in the narrative following the Director Compensation table on Page 44 of this Proxy Statement under the heading “Director Compensation”.

 

We have historically granted options to our employees and directors under our 1998 Stock Option Plan, our 2000 Stock Option Plan and our 2004 Stock Option Plan (the Prior Option Plans). Following the adoption of the Equity Plan, we ceased issuing options under the Prior Option Plans, however all options previously issued under the Prior Option Plans which remain outstanding continue to be governed by the terms of such Prior Option Plans.

 

The following table sets forth information regarding each unexercised option and unvested stock award held by each of our Named Executive Officers as of March 31, 2011:

 

 

 

The following table provides information on stock option exercises and vesting of restricted stock during the 2011 fiscal year:

 

 

The following table shows the executive contributions, earnings and account balances for all Named Executive Officers who participate in our Deferred Compensation Plan. The Deferred Compensation Plan allows full time salaried employees who have an annual base salary of at least $150,000, including the Named Executive Officers, to defer up to 50% of their annual base salary and up to 100% of their annual bonuses. Deferred amounts are not subject to federal or state income tax until a participant withdraws amounts from the Deferred Compensation Plan. We do not match any of these funds.

 

Employees who participate in the Deferred Compensation Plan may at their option invest deferred monies in a range of investment vehicles that generally mirror the choices available to all employees in the Company’s 401(k) Plan. The investment options in the Deferred Compensation Plan have returns that would be the same as those earned on the same options in the Company’s 401(k) Plan for the 2011 fiscal year. The rates of return for funds in the Deferred Compensation Plan ranged from: 0.00% to 26.66%.

 

 

 

 

 

 

Severance Arrangements

 

The offer letters pursuant to which certain executive officers joined Forest, including certain of the Named Executive Officers, include a severance guarantee for the three year period commencing as of the executive’s start date or if longer, a one year period following his or her termination of employment, limited to severance and certain benefits in the event of a termination of his or her employment by us without Cause or the employee’s termination of employment for Good Reason, each as defined in the applicable offer letter (a Severance Payment Qualifying Termination). The offer letters also provide for continued health coverage until the earlier of the expiration of a one year period or the date such officer obtains alternate coverage.

 

Dr. Olanoff, Mr. Perier and Dr. Taglietti each joined the Company pursuant to offer letters which included severance guaranties. Dr. Olanoff retired from his position as President and COO of the Company effective December 31, 2010, and was not entitled to any severance compensation in connection with his retirement. Accordingly, Mr. Perier and Dr. Taglietti are currently the only Named Executive Officers who are entitled to severance benefits pursuant to offer letters. Upon a Severance Payment Qualifying Termination, each such officer is entitled to receive base salary payments for the one year severance period following his termination, plus bonus for the year in which the termination of employment occurs equal to the greater of the last bonus that such officer received from the Company or 40% of such officer’s salary target, plus continued medical and dental health care coverage for such officer and any eligible family members until the earlier of the expiration of the one year period or the date such officer obtains alternate coverage. The potential amounts payable to Dr. Taglietti and Mr. Perier pursuant to the severance obligations assuming a termination date of March 31, 2011 are set forth in the below table:

 

Potential Payments Upon Termination

 

 

 

 

Benefits Continuation Agreements

 

On December 1, 1989, the Board authorized the grant of certain medical insurance benefits to certain senior executive officers and their spouses upon the completion of ten years of service by such officers. The benefit is provided to these executives and their spouses for their lifetimes following termination of the executive’s employment with Forest. The benefit is equivalent to the medical insurance benefits provided to the executives as of the date of their termination or as of December 1, 1989, if more favorable, together with payment of reasonable health care related costs. The benefit need not be provided to the extent and for any time that the executive obtains comparable coverage from a subsequent employer. Mr. Howard Solomon is currently the only executive officer who is entitled to these benefits. The amounts payable on behalf of Mr. Solomon, assuming he had terminated his employment as of March 31, 2011, are reasonably estimated to be equal to $81,000 annually.

Change in Control

 

As disclosed in the Compensation Disclosure and Analysis section of this Proxy Statement, the Company has entered into Change in Control agreements with several key employees, including each of its Named Executive Officers. The current agreements automatically renew each year on January 1 for an additional three year period unless the Company provides the executive written notice at least 60 days prior to such date that the term of his or her Change in Control agreement will not be extended for an additional three year period. The Board has determined that it is in both our best interests and the best interests of our stockholders to enter into Change in Control agreements with certain executive officers. In particular, these agreements enable management to evaluate and support potential transactions that might be beneficial to stockholders without regard to the potential impact on their own job security or earned benefits. Additionally, the agreements provide for continuity of management in the event of a Change in Control.

 

Each agreement becomes effective only upon the occurrence of a Change in Control and provides that the executive is entitled to salary, bonus and benefits for a three year period following a Change in Control if the executive’s employment is terminated as a result of such Change in Control or during such three year period by the Company without Cause or by the employee for Good Reason or for Adequate Reason (a Qualifying Termination). “Cause” is generally defined as one of the following: (i) refusal of the executive to comply with written instructions of our Board or CEO that are consistent with the scope of the executive’s responsibilities; or (ii) willful engagement by the executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. “Good Reason” includes a reduction in job responsibilities, or changes in pay and benefits as well as any material change in the geographic location at which the executive must perform services to the Company. The executive has 90 days to assert a claim for payment in connection with a termination for Good Reason. “Adequate Reason” means the executive’s resignation for any reason or no reason during the 30-day period immediately following the first anniversary of the Change in Control.

 

Subject to certain exceptions, a “Change in Control” is generally defined as (i) an acquisition of more than 50% of our common stock or voting securities by a person or group not acquiring their shares directly from us, (ii) an acquisition during any 12-month period of 30% or more of our common stock by a person or group not acquiring their shares directly from us, (iii) a change in the majority of the current Board or their designated successors not consented to by such current Board or designated successors, or (iv) a merger, consolidation or sale of all or substantially all of our assets which involves a 50% or greater change in our stockholders or the replacement of a majority of the current Board or their designated successors or the acquisition by a person or group of more than 30% of our voting securities.

 

Upon such Qualifying Termination, executives subject to these agreements are eligible for the following amounts: (i) the amount of any accrued compensation obligations to the executive through the termination date, consisting of unpaid base salary, a pro-rated bonus equal to the greater of the executive’s annualized current year bonus or the highest annual bonus received by such executive during the three years preceding the Change in Control, and other accrued compensation through the termination date; plus (ii) an amount equal to three times the executive’s base salary and highest annual bonus during the three years preceding the Change in Control; plus (iii) the actuarial equivalent of the employee’s benefit under any retirement plans in which the executive participates, assuming continued participation for a three year period following the termination date. In addition, the executive will receive continued medical benefits for a three year period for both the executive and his or her family, provided however that such coverage will be secondary to any coverage the executive obtains from a subsequent employer. Lastly, the employee will be provided with outplacement services and any other amounts or benefits required to be paid or provided under any plan or program. In calendar 2008, these agreements were formally amended with the intention that they would comply with Section 409A of the Internal Revenue Code which may impose additional taxes on executive officers for certain types of deferred compensation that are not in compliance with Section 409A.

Potential Payments Upon Change in Control

 

The following table sets forth our reasonable estimate of the potential payments to each of our Named Executive Officers under our Change in Control Agreements if a Change in Control occurred as of March 31, 2011:

 

 

 

 

The table below summarizes the compensation for our non-employee directors for the fiscal year ended March 31, 2011:

 

 

 

 

 

 

Director Fees

 

During the 2011 fiscal year we had the following standard compensation arrangements with our non-employee directors: a $50,000 annual retainer fee for services as a director, a $2,500 fee for each Board meeting attended, a $1,500 fee for attendance at a Committee meeting, a $15,000 annual retainer fee for the Audit Committee Chairperson, a $15,000 annual retainer fee for the Board Compliance Committee Chairperson, a $10,000 annual retainer fee for the Compensation Committee Chairperson, a $5,000 retainer fee for the Secretary of the Board, and a $1,000 payment to any out-of-town non-employee director who is required to come to New York City for a meeting and an annual fee of $15,000 for the presiding director. Out-of-town non-employee directors are also reimbursed for travel expenses incurred in connection with meetings. On

December 6, 2010, the Board agreed that except for the addition of an annual retainer fee for the Chairperson of the newly established Board Compliance Committee, Director compensation arrangements would remain the same as set forth in the prior year.

 

Automatic Equity Grants

 

Our non-employee directors also participate in the 2007 Equity Incentive Plan (the Equity Plan). Under the Equity Plan, an initial grant of options covering 20,000 shares of common stock is automatically granted to a non-employee director upon appointment to the Board. Each such option grant is at an exercise price equal to the average of the high and low prices of our common stock on the NYSE on the grant date. The options become exercisable (assuming the non-employee director is then serving on the Board) as to 25% of the shares covered by the options on the six-month anniversary of the grant date and on each of the first, second and third anniversaries of the grant date until all such options are exercisable.

 

The Equity Plan further provides for the automatic annual grant to each of our non-employee directors of options having a value of $75,000 calculated on the grant date in accordance with the Black-Scholes option pricing model (utilizing the same assumptions that the Company utilizes in preparation of its financial statements), with the number of options rounded up to the nearest whole share, on the date of such director’s annual election or re-election by our stockholders. Each such option grant is at an exercise price equal to the average of the high and low prices of our common stock on the NYSE on the grant date and becomes fully exercisable (provided the non-employee director is then serving on the Board) on the six-month anniversary of the grant date. All options granted under the Equity Plan to non-employee directors have a term of ten years from the grant date.

 

The Equity Plan also provides for the automatic annual grant to each of our non-employee directors of common stock having a fair market value of $75,000 on the grant date, with the number of shares rounded up to the nearest whole share. The annual stock award is subject to a risk of forfeiture which lapses (assuming the non-employee director is then serving on the Board) as to 25% of the shares covered by the award on the six-month anniversary of the grant date and on each of the first, second and third anniversaries of the grant date, except that such risk of forfeiture will automatically lapse in the case of a non-employee director who dies while serving on the Board and who has served on the Board for at least one year following receipt of the stock grant.

 

 

For the fiscal year ended March 31, 2011, the Audit Committee (Committee) consisted of William J. Candee, III (the Chairman), Dan L. Goldwasser and Lester B. Salans, M.D. The Board of Directors (the Board) has affirmatively determined that Messrs. Candee, Goldwasser and Dr. Salans are independent as defined under the NYSE listing standards. The Committee operates under a written charter adopted by the Board.

 

The Committee recommends to the Board, subject to stockholder ratification, the selection of our independent registered public accounting firm. Management is responsible for our internal controls and the financial reporting process. The independent registered public accounting firm is responsible for performing an independent audit of the Company’s consolidated financial statements in accordance with auditing standards of the Public Company Accounting Oversight Board and for issuing a report thereon. The Committee monitors and oversees these processes.

 

In this context, the Committee has met and held discussions with management, the internal auditor and BDO USA, LLP (BDO), our independent registered public accounting firm. Management represented that the consolidated financial statements were prepared in accordance with accounting principles generally

 

 

accepted in the United States of America. The Committee reviewed and discussed the audited consolidated financial statements, as well as the unaudited financial statements included in Quarterly Reports on Form 10-Q for each of the first three quarters of the fiscal year, with management, the internal auditor and BDO. The Committee discussed with BDO the matters required to be discussed by Statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1. AU section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T, relating to communication with audit committees. BDO also provided the Committee with the written disclosures and letter required by applicable requirements of the Public Company Accounting Oversight Board regarding BDO’s communications with the Committee concerning independence, and the Committee discussed with BDO its independence from the Company and management.

 

In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board that the audited financial statements be included or incorporated by reference in the Annual Report on Form 10-K for the fiscal year ended March 31, 2011 for filing with the Securities and Exchange Commission. The Board has adopted this recommendation.

 

Audit Committee

William J. Candee, III

Dan L. Goldwasser

Lester B. Salans, M.D.

 

At our 2010 Annual Meeting of Stockholders, as required under the Company’s Corporate Governance Guidelines, we gave our stockholders the opportunity to cast an advisory vote on our executive compensation policies and procedures; more than 81% of the votes cast supported our policies and procedures. This year, as required by Section 14A of the Exchange Act, we are again providing stockholders the opportunity to advise the Compensation Committee and the Board regarding the compensation of our Named Executive Officers, as such compensation is described in the Compensation Discussion and Analysis section of this Proxy Statement, the tabular disclosure regarding such compensation and the accompanying narrative disclosure, beginning on Page 24 of this Proxy Statement. We urge our stockholders to review the Compensation Discussion and Analysis section of this Proxy Statement and the executive-related compensation tables for more information.

 

Our executive compensation programs are designed to enable us to attract, motivate and retain executive talent, who are critical to our success. Consistent with our performance-based compensation philosophy, we reserve the largest portion of potential compensation for performance- and equity-based programs. Our performance-based bonus program rewards the Company’s executive officers for achievement of key operational goals that we believe will provide the foundation for creating long-term stockholder value, while our equity awards, mainly in the form of stock options and restricted stock, reward long-term performance and align the interests of management with those of our stockholders.

 

Among the various forms of performance-based compensation, we believe that equity awards, in particular, serve to align the interests of our executives with those of our long-term stockholders by encouraging long-term performance. As such, equity awards are a key component of our executive compensation program. In 2010, equity awards, mainly in the form of stock options and restricted stock, represented approximately 69% of our Named Executive Officers’ aggregate cash and equity compensation. Equity awards closely align the long-term interests of our executives with those of our stockholders because the value of such awards is dependent upon the Company’s stock price. In addition, equity awards align with our growth strategy and provide significant financial upside if our growth objectives are achieved, while placing a significant portion of our executives’ compensation at-risk if our objectives are not achieved.

 

The Board believes that the information provided above and within the Compensation Discussion and Analysis section of this Proxy Statement demonstrates that our executive compensation program was designed appropriately and is working to ensure that management’s interests are aligned with our stockholders’ interests and support long-term value creation. Accordingly, the following resolution is to be submitted for a stockholder vote at the Annual Meeting:

 

“RESOLVED, that the Company’s stockholders approve, on an advisory basis, the compensation of the Named Executive Officers, as disclosed in the Company’s Proxy Statement for the 2011 Annual Meeting of Stockholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the 2011 Summary Compensation Table and the tabular disclosure regarding such compensation and the accompanying narrative disclosure.”

 

Because the vote is advisory, it will not be binding on the Board. However, the Board and the Compensation Committee will review the voting results and take into account the outcome when considering future executive compensation arrangements. The Board and management are committed to our stockholders and understand that it is useful and appropriate to obtain the views of our stockholders when considering the design and initiation of executive compensation programs.

 

OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” APPROVAL OF THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS, AS DESCRIBED IN THE COMPENSATION DISCUSSION AND ANALYSIS, COMPENSATION TABLES AND NARRATIVE DISCUSSION SET FORTH IN THIS PROXY STATEMENT.

 

In addition to seeking our stockholders’ advisory vote on the compensation of our Named Executive Officers, we are asking our stockholders to express a preference as to how frequently future advisory votes on executive compensation should take place. As required by Section 14A of the Exchange Act, we are giving stockholders the opportunity to express a preference to cast such advisory votes annually, every two years or every three years; stockholders also have the option to abstain from voting on this matter. We are required to hold at least once every six years an advisory vote to determine the frequency of the advisory stockholder vote on executive compensation.

 

The Board recommends that advisory votes on executive compensation take place every year. Our Board has determined that an annual advisory vote on executive compensation will allow our stockholders to provide timely, direct input on the Company’s executive compensation philosophy, policies and practices as disclosed in the Proxy Statement each year. The Board believes that an annual vote is therefore consistent with the Company’s efforts to engage in an ongoing dialogue with our stockholders on executive compensation and corporate governance matters.

 

The Company recognizes that the stockholders may have different views as to the best approach for the Company, and therefore we look forward to hearing from our stockholders as to their preferences on the frequency of an advisory vote on executive compensation.

 

As with the Say-on-Pay vote, the Say-When-on-Pay vote is advisory, and therefore it will not be binding on the Board. However, the Board and the Compensation Committee will take into account the outcome of the vote when considering the frequency of future advisory votes on executive compensation. The Board may decide that it is in the best interests of our stockholders and the Company to hold an advisory vote on executive compensation more or less frequently than the alternative approved by our stockholders.

 

The WHITE proxy card provides stockholders with the opportunity to choose among four options (holding the vote every one, two or three years, or abstaining).

 

OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR “1 YEAR” AS THE FREQUENCY FOR FUTURE ADVISORY VOTES ON THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS.

 

The firm of BDO USA, LLP (BDO) has audited our consolidated financial statements for each of the three fiscal years ended March 31, 2011. In addition to retaining BDO to audit our consolidated financial statements for fiscal year 2011, we and our affiliates retained BDO, as well as other accounting and consulting firms, to provide various consulting and other services in fiscal year 2011 and expect to continue to do so in the future.

 

The following table presents fees for professional audit services rendered by BDO for the audit of our annual financial statements and review of financial statements included in our Quarterly Reports on Form 10-Q for fiscal years 2011 and 2010, and fees billed for other services rendered by BDO:

 

 

 

 

The Audit Committee’s policy is to pre-approve all audit services and all non-audit services that our independent registered public accounting firm is permitted to perform for us under applicable federal securities regulations. While the general policy of the Audit Committee is to make such determinations at full Audit Committee meetings, the Audit Committee may delegate its pre-approval authority to one or more members of the Audit Committee, provided that all such decisions are presented to the full Audit Committee at its next regularly scheduled meeting.

 

The Board desires to continue the services of BDO for the current fiscal year ending March 31, 2012. Accordingly, the Board recommends that you ratify the selection by the Board of BDO to audit the financial statements of Forest for the current fiscal year. Representatives of BDO are expected to be present at meeting, will have the opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions from the stockholders.

 

THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE IN FAVOR OF THE SELECTION OF BDO USA, LLP.

 

Annual Report

 

A copy of Forest’s 2011 Annual Report has previously been mailed to stockholders.

 

Form 10-K

 

AT YOUR WRITTEN REQUEST, WE WILL PROVIDE WITHOUT CHARGE A COPY OF OUR ANNUAL REPORT ON FORM 10-K AS FILED WITH THE SEC FOR THE FISCAL YEAR ENDED MARCH 31, 2011. PLEASE MAIL YOUR REQUEST TO CORPORATE SECRETARY, FOREST LABORATORIES, INC., 909 THIRD AVENUE, NEW YORK, NEW YORK 10022. YOU MAY ALSO ACCESS OUR

FORM 10-K BY CLICKING ON THE “SEC FILINGS” LINK UNDER THE “INVESTORS” SECTION OF OUR WEBSITE AT WWW.FRX.COM.

 

Proposals of Stockholders

 

If you wish to submit a proposal for consideration at our 2012 Annual Meeting of Stockholders, you should submit the proposal in writing to us at the address set forth on Page 1 of this Proxy Statement. To be included in next year’s proxy materials, proposals must be received by us on or before March 20, 2012, and must, in all other respects, comply with Rule 14a-8 under the Exchange Act. If you intend to present a proposal at our 2012 Annual Meeting of Stockholders without inclusion of the proposal in our proxy materials, you are required to provide notice of such proposal to us in accordance with our Bylaws no later than May 20, 2012 and no earlier than June 19, 2012. We may vote in our discretion as to any such proposal all of the shares for which we have received proxies for the 2012 Annual Meeting of Stockholders in accordance with and subject to applicable rules under the Exchange Act.

 

Your vote is important. We urge you to vote by mail, by telephone, or via the Internet without delay.

 

HERSCHEL S. WEINSTEIN

Corporate Secretary

 

Dated: July 18, 2011

APPENDIX A

 

DIRECTOR QUALIFICATION STANDARDS

 

APPENDIX B

 

INFORMATION CONCERNING PARTICIPANTS
IN THE COMPANY’S SOLICITATION OF PROXIES

 

The following tables set forth the name and business address of our directors and nominees, and the name, present principal occupation and business address of our officers and employees who, under the rules of the Securities and Exchange Commission, are considered to be “participants” in our solicitation of proxies from our stockholders in connection with our 2011 Annual Meeting of Stockholders.

 

Directors and Nominees

 

The principal occupations of our directors and nominees who are considered “participants” in our solicitation are set forth under the section above titled “PROPOSAL 1 — ELECTION OF DIRECTORS” of this Proxy Statement. The name and business addresses, and address of the organization of employment, of our directors and nominees are as follows:

 

Officers and Employees

 

The principal occupations of our executive officers and employees who are considered “participants” in our solicitation of proxies are set forth below. The principal occupation refers to such person’s position with the Company, and the business address for each person is Forest Laboratories, Inc., 909 Third Avenue, New York, NY 10022.

 

 

Information Regarding Ownership of Forest Securities by Participants

 

The number of shares of our common stock held by our directors and named executive officers as of June 24, 2011 is set forth under the “SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT” section of this Proxy Statement.^{1, 2} The following table sets forth the number of shares held as of June 24, 2011 by our other employees who are deemed “participants” in our solicitation of proxies. No participant owns any securities of the Company of record that such participant does not own beneficially.

 

 

(1) Includes 18,125 shares of stock that are subject to a risk of forfeiture and includes 4,500 shares issuable pursuant to options that were exercisable on June 24, 2011 or which become exercisable within 60 days of June 24, 2011.

 

(2) Included 86,250 shares of stock that are subject to a risk of forfeiture and includes 92,750 shares issuable pursuant to options that were exercisable on June 24, 2011 or which become exercisable within 60 days of June 24, 2011.

 

 

¹ The 3,549,797 shares of common stock reported as being beneficially owned by Mr. Howard Solomon includes 58,431 shares beneficially owned by the Howard and Sarah D Solomon Foundation, a 501(c)(3) charitable foundation as to which Mr. Solomon disclaims beneficial ownership and which may be deemed to be an associate of Mr. Solomon. The address of the Howard and Sarah D Solomon Foundation is c/o Howard Solomon, 909 Third Avenue, New York, NY 10022.

²  The 596,647 shares of common stock reported as being beneficially owned by Dr. Olanoff does not include 10,000 shares beneficially owned by the Olanoff 2010 Charitable Remainder Trust, a charitable remainder trust as to which Dr. Olanoff disclaims beneficial ownership and which may be deemed to be an associate of Dr. Olanoff. The address of the Olanoff 2010 Charitable Remainder Trust is c/o Credit Suisse (USA) LLC Securities, 11 Madison Ave, 7th Floor, New York, NY 10010. Pursuant to the trust instrument, Dr. Olanoff receives an annuity of 5% per year from the trust.

 

Information Regarding Transactions in Forest Securities by Participants

 

The following table sets forth information regarding purchases and sales of our securities by each of the participants listed above under “Directors and Nominees” and “Officers and Employees” during the past two years. Unless otherwise indicated, all transactions were in the public market or pursuant to our equity compensation plans and none of the purchase price or market value of those securities is represented by funds borrowed or otherwise obtained for the purpose of acquiring or holding such securities.