Settlement Alert: Regeneron Pharmaceuticals, Inc. Derivative Action

10/10/2018 - Barrack, Rodos & Bacine announces a settlement of shareholder derivative actions pending in the New York Supreme Court. 

Background:  On November 8, 2017, BR&B, on behalf of the Public Employees’ Retirement System of Mississippi (MPERS), filed a shareholder derivative case captioned Public Employees’ Retirement System of Mississippi v. Leonard S. Schleifer et al., Index No. 656813/2017 (N.Y. Co.).  The complaint alleged that the then-current and certain former directors of Regeneron Pharmaceuticals, Inc. breached their fiduciary duties by awarding themselves excessive compensation from the company’s equity compensation plans.  Specifically, the complaint alleged that the defendants were unjustly enriched when they approved and/or received allegedly excessive compensation in 2013, 2014, 2015, and 2016, and that they breached their fiduciary duties when they approved the Regeneron Pharmaceuticals, Inc. 2014 Long-Term Incentive Plan in 2014 and the Amended and Restated Regeneron Pharmaceuticals, Inc. 2014 Long-Term Incentive Plan in 2017, which authorized the award of equity compensation to directors and others.  The complaint, which was consolidated for discovery and trial purposes with a related action (Cement Masons Local 780 Pension Fund and City of Warren Police and Fire Retirement System v. Leonard S. Schleifer, et al., Index No. 654453/2015 (N.Y. Co.)), sought remedies in favor of Regeneron for the alleged breaches of fiduciary duties and unjust enrichment, changes to Regeneron’s corporate governance and internal procedures, and other relief. 

The Settlement:  After certain Court-ordered document discovery took place, BR&B negotiated a settlement on behalf of MPERS, which was subsequently modified and joined by the plaintiffs in the related action.  The settlement described in the Notice of Proposed Settlement of Derivative Action, includes the following provisions: 

  • Regeneron agreed to a significant reduction of the compensation that will be provided to its non-employee directors and the chairman of its board for the next five years.  Altogether, the defendants have acknowledged that the caps on compensation in the settlement along with the reduced compensation awarded to the non-employee directors and the chairman of its board in December 2017 and January 2018 provide a $44.5 million financial benefit to the Company;
  • While the above-described caps cannot be changed before 2021, after 2021 only a vote of non-affiliated shareholders can increase the caps, meaning that Company insiders as well as other potentially interested shareholders will not be able to vote on this issue.  This is important because in 2014 and 2017, the Board’s proposed compensation plans were opposed by approximately two-thirds of the Company’s non-affiliated shareholders but the plans obtained overall shareholder approval because the Company’s CEO owned stock that had ten votes per share and the Board had secured a voting rights agreement to vote the shares of a joint venture partner, which together gave the Board the ability to cast nearly forty percent of the votes counted at the shareholder meetings when these plans were considered;
  • Regeneron agreed to provide significantly enhanced disclosures concerning director compensation for the next five years compared to what would otherwise be required by SEC regulations; and
  • Regeneron agreed to institute certain governance reforms concerning director compensation. 

Click here for a copy of the Settlement Agreement; click here for a copy of the Notice of Proposed Settlement of Derivative Actions.  On October 10, 2018, the Court overseeing the actions authorized the parties to issue notices of the settlement.  The final settlement hearing is scheduled to take place on December 3, 2018.