Thursday, May 15, 2008

Breach of Fiduciary Duties Claimed -- Hans Becherer, Chairman of the Schering-Plough Compensation Committee -- Cain v. Hassan, et al. -- May 14, 2008

I now return to offering yet-another summary of the more salient aspects of the Cain claims -- claims which, for reasons detailed below, have caught my eye, particularly. So, here goes:

The verified complaint of the plaintiffs in Cain v. Hassan, et al., lays out, I think, a rather compelling case against Hans Becherer, personally, for alleged breaches of his fiduciary duties as a Schering-Plough Director, in approving compensation to Mr. Hassan [NOTE: you may STILL vote in the May 2008 option-grant poll, at left!], and other high officers, in the following way:

. . . .20. Defendant Hans W. Becherer (“Becherer”), upon information and belief, is a citizen of Florida. Becherer has been a Director of the Company since 1989. During the Relevant Period, Becherer served as Chair of the Compensation Committee and served as a member of the Audit Committee and the Nominating & Corporate Governance Committee. According to the Company’s 2007 and 2008 Proxies, Becherer received $215,000 in total compensation for his services as Director of the Company in 2006 and 2007 respectively. Moreover, according to the 2008 Proxy, Becherer directly or indirectly controls 66,740 shares of the common stock of Schering. . . .

59. The following Director Defendants served on the Compensation Committee of the Schering Board of Directors at certain times during the Relevant Period: Hans W. Becherer [Chairman], C. Robert Kidder, Patricia F. Russo, Jack L. Stahl and Arthur F. Weinbach.

60. According to its charter, the Compensation Committee represents the Board in discharging its responsibilities relating to compensation of the Company’s officers and to assist the Board with the approval of equity compensation plans. . . . The Committee has overall responsibility for approving and evaluating the officer compensation plans, policies and programs for the Company. The Compensation Committee’s charter states that “as part of the determination of the CEO’s compensation, the Committee shall, after receiving input from the full Board, annually review the CEO’s performance in light of corporate goals and objections.” One factor that the Board must consider is the Company’s performance and relative shareholder return.

61. With regard to determining executive compensation, the Compensation Committee reviews and makes recommendations to the Board with respect to incentive compensation plans and equity-based plans. Specifically, as part of the determination of the CEO’s compensation, the Compensation Committee, after receiving input from the full Board, annually reviews the CEO’s performance in light of corporate goals and objectives and sets the CEO’s compensation levels based on this evaluation.

62. As described herein, the above referenced responsibilities were violated by Director Defendants Becherer, Kidder, Russo, Stahl and Weinbach as members of the Compensation Committee during the Relevant Period, and as such, each faces a substantial likelihood of liability by this action. Becherer, Kidder, Russo, Stahl and Weinbach continue to serve on Schering’s Board, and are disabled from performing a disinterested view of the claims in this case, and from acting to bring a suit and remedy the wrongs described herein. . . .

128. On May 1, 2008, despite the aftermath of the gross mismanagement of the disclosure of ENHANCE study results, the Compensation Committee reviewed defendant Hassan’s, performance in “light of corporate goals and objectives” and decided, upon affirmance of the Board to give the CEO a discretionary 836,000 share [stock option] grant at an exercise price of just $18.85, under Schering’s 2006 Stock Incentive Plan. The 836,000 shares [stock option] grant is valued at approximately $9,130,000 of which about $7,700,800 is not subject to the CEO satisfying any performance criteria. By awarding the CEO this additional compensation in light of his performance in 2007, overseeing the Company’s unethical and unlawful activities, resulting in the tremendous diminution of stock price and value of the Company, the Director Defendants ratified the CEO’s unlawful and unethical conduct.

139. . . . .Additionally, each Director Defendants ratified the unlawful and unethical conduct described herein, by ratifying the CEO’s excessive compensation of a grant of 836,000 stock options at an exercise price of $18.85 after knowing about his unethical and unlawful conduct.

140. In addition, because the composition of Schering’s Board has remained largely the same during the time that the Company suppressed the ENHANCE study’s results and escalated the Company’s marketing efforts for ZETIA and VYTORIN, the Board cannot objectively evaluate a demand to institute an action against the Director Defendants – all of whom are current Board members. . . .

142.(e). . . . .Defendant Becherer is incapable of considering a demand because
i. he is directly interested since in 2006 and 2007, Becherer received approximately $215,000 in fees, shares and/or compensation for his service as a Schering director each year. In addition, he is the beneficial owner of 66,740 shares of the common stock of Schering;

ii. by approving the additional 836,000 stock option grant to defendant Hassan at $18.85, which, as Hassan and the Company publicly claim, is a price that undervalues the stock, he violated the Charter of the Compensation Committee and failed to meet his responsibilities as a member of the Compensation Committee. By such action of granting the excessive compensation to CEO Hassan, after knowing of the wrongdoing, he ratified the unlawful and unethical conduct of defendant Hassan described herein. Thus, he faces a substantial likelihood of liability for his actions, and is thereby disabled from performing a disinterested view of the claims in this case, and from acting to bring a suit and remedy the wrongs described herein;

iii. as a member of the Audit Committee, which is charged with ensuring the Company’s compliance with laws and regulations, he either knew of the wrongdoing and permitted it to continue or failed to exercise the oversight required of him, ignoring all red flags and allowing serious wrongdoing surrounding the clinical trial of the Company’s number one product to go on for 21 months; and

iv. he is a defendant in this action and there is reasonable doubt that Becherer is capable of independently considering a demand to pursue this action on behalf of the Company because Becherer himself faces a substantial likelihood of liability for his actions. . . .

144. . . .To benefit from the protection of the business judgment rule, a director must be informed of all material information reasonably available and, being so informed, the director must act with requisite care in discharging his or her duties. . . .

146. Moreover, the three-times-delayed presentation of the ENHANCE results to the AHA and ACC were “red flags” that should have alerted Director Defendants that there was a serious problem with the results and caused them to inquire further of management. Further, the ongoing negative publicity and in-fighting between the Company and its consultants about the failure to release the ENHANCE study results and the manipulation of said results, also constitute “red flags,” of which the Director Defendants must have known and recklessly ignored. . . .

Didja' catch the bit -- at Paragraph 142(e)ii, above -- about the May 2008 CEO's (and all other officers') stock options being granted at an [allegedly] "undervalued" stock price? Yeh -- I know you did. That is all rather-flattering, actually (see the link).

Tomorrow morning's shareholder meeting could get rather ugly -- rather quickly -- if any real shareholder activists take the floor, on any of these topics.

Here's what the above page looks like, in context [click to enlarge]:

1 comment:

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