This morning Forest Laboratories, Inc. (NYSE:FRX) announced, that pursuant to an agreement with Carl Icahn, Forest’s board has appointed Vincent Intrieri as a new independent board member and Carl Icahn has agreed: 1) not to run a proxy contest at Forest’s 2013 annual meeting and vote his shares in favor of Forest’s 11 director nominees (10 current directors and Intrieri); and 2) to certain standstill restrictions that will be in effect so long as Intrieri serves on the Board (mainly capping Ichans’ position in FRX at 15%). Intrieri will become the fifth member of the independent committee overseeing succession planning.

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Forest Laboratories

In response to the agreement, Icahn reports that he does not believe his and CEO Howard Solomon’s views concerning Forest are that far apart, and both believe that they can work together to bring major changes that will enhance shareholder value. In our view, the agreement can be viewed in two ways – either as limiting Icahn’s ability to effect further change in the near-term or reflecting that both parties have come to agreement as to Forest’s future strategy, with more change to come. Analysts at Barclays believe it seems that Icahn’s hands are now a bit tied with the agreement, lessening the possibility of major near-term change and increasing the likelihood that Forest Laboratories, Inc. (NYSE:FRX)’s story will hinge on the success of product launches. In our view, there is growing pressure these launches gain traction as the patent expiry for Namenda, which represents the overwhelming majority of the company’s profitability, approaches in January 2015.

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Agreement Between Forest Laboratories And Icahn Group

The following details the main points of the nomination and standstill agreement between Forest Laboratories, Inc. (NYSE:FRX) and the Icahn Group (Carl Icahn, Vincent Intrieri and affiliated parties) and effective June 10, 2013:

  • No 2013 proxy contest. The Icahn Group agrees not to conduct a proxy contest for the election of directors with respect to the 2013 annual meeting of stockholders.
  •  Icahn accumulation of FRX stock capped at 15% (currently just under 12%) until the later of June 2014 or when Intrieri ceases to be a board member. The Icahn Group agrees not to acquire more than 15% of the company stock for at least one year after the effective date of the agreement – or June 10, 2014. Specifically, the Ichan Group agrees that it will not acquire more than 15% of FRX voting securities until the later of the date when Intrieri ceases to a board member or the one-year anniversary of the agreement, subject to certain exceptions.
  •  Forest Laboratories, Inc. (NYSE:FRX) increases size of board to 11 directors from 10, appointing Icahn designee Vincent Intrieri as the 11th director. In addition, Forest will include Intrieri in its slate of nominees for election to the Board at the 2013 Annual Meeting and recommend FRX stockholders vote in favor of Intrieri. • Icahn Group will vote in favor of all FRX board nominees, at each annual meeting, as long as Intrieri remains on the board. The Icahn Group agrees to vote all of its shares of common stock in favor of the election of all FRX’s director nominees at each annual meeting of Forest Laboratories, Inc. (NYSE:FRX).

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  •  Ichan Group will not solicit proxies and will adhere to other standstill obligations, as long as Intrieri remains a Forest Laboratories, Inc. (NYSE:FRX) board member. The obligations include no solicitation of proxies or consents or influence others with respect to the same.
  • Forest Laboratories, Inc. (NYSE:FRX) will promptly appoint Intrieri to the Board’s Succession Planning Committee, as well as include Intrieri as a member of an Executive Committee until the 2014 annual meeting. The FRX board will consider the appointment and employment of executive officers and M&A transactions at the full Board level or in committees of which Intrieri is a member. The size of the Board will not increase beyond 11 members prior to the 2014 annual meeting.
  • In the event Intrieri is not serving on the board, the Icahn Group will be entitled to designate a replacement director that is approved by Forest. The exception is if Forest Laboratories, Inc. (NYSE:FRX) does not nominate Intrieri for an annual meeting subsequent to 2013. In general, Forest is required to notify the Ichan Group at least 45 calendar days in advance of Forest’s advance notice deadline whether Intrieri will be nominated for election.
  •  If the Icahn Group ceases to hold a net long position in Forest, Forest Laboratories, Inc. (NYSE:FRX)  obligations under the agreement terminate and Intrieri will resign from the board. Specifically, a net long position is defined as at least 15,331,002 share of Forest’s common stock.

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  •  Intrieri’s compensation under the agreement. Intrieri is eligible to receive an annual cash retainer of $110,000 (prorated for service during a partial fiscal year), a fee of $2,500 for attending each Board meeting, and a fee of $1,500 for attending each committee meeting. Upon appointment to the Board, Intrieri will receive an initial grant of options covering 20,000 shares of common stock, which will vest in quarterly increments. In addition, if Intrieri is elected to the Board, he will receive an automatic grant of: 1) options having a value of $75,000, calculated on the grant date; and 2) common stock having a FMV of $75,000 on the grant date