Fixed Dollar Collared Accelerated Share Repurchase Transaction Agreement between Forest Laboratories, Inc. and Morgan Stanley & Co. Incorporated dated June 3, 2011 Press release of Forest Laboratories, Inc. dated June 3, 2011

(b)  If Issuer timely elects to deliver Early Settlement Shares and Make-Whole Shares by means of a private placement, the following provisions shall apply:

(i)   all Early Settlement Shares and Make-Whole Shares shall be delivered to the Seller (or any affiliate of the Seller designated by the Seller) pursuant to the exemption from the registration requirements of the Securities Act provided by Section 4(2) thereof;

(ii)   Seller and any potential purchaser of any such Shares from the Seller (or any affiliate of the Seller designated by the Seller) identified by Seller shall have been afforded a commercially reasonable opportunity to conduct a due diligence investigation with respect to Issuer customary in scope for private placements of equity securities (including, without limitation, the right to have made available to them for inspection all financial and other records, pertinent corporate documents and other information reasonably requested by them) and Buyer shall not disclose material non-public information in connection with such due diligence investigation; and

 

(iii)  an agreement (a “Private Placement Agreement”) shall have been entered into between Issuer and the Seller (or any affiliate of the Seller designated by the Seller) in connection with the private placement of such Shares by Issuer to the Seller (or any such affiliate) and the private resale of such Shares by the Seller (or any such affiliate), substantially similar to private placement purchase agreements customary for private placements of equity securities, in form and substance commercially reasonably satisfactory to the Seller and the Issuer, which Private Placement Agreement shall include, without limitation, provisions substantially similar to those contained in such private placement purchase agreements relating to the indemnification of, and contribution in connection with the liability of, the Seller and its affiliates, and shall provide for the payment by Issuer of all fees and expenses in connection with such resale, including all reasonable fees and expenses of one counsel for the Seller but not including any underwriter or broker discounts and commissions, and shall contain representations, warranties and agreements of Issuer and Seller reasonably necessary or advisable to establish and maintain the availability of an exemption from the registration requirements of the Securities Act for such resales.

(iv)  If Issuer elects to deliver Early Settlement Shares to satisfy its payment obligation of an Early Settlement Payment, neither Issuer nor Seller shall take or cause to be taken any action that would make unavailable either (i) the exemption set forth in Section 4(2) of the Securities Act for the sale of any Early Settlement Shares or Make-Whole Shares by Issuer to the Seller or (ii) an exemption from the registration requirements of the Securities Act reasonably acceptable to the Seller for resales of Early Settlement Shares and Make-Whole Shares by the Seller.

(v) On the date requested by MSCO, (A) Issuer shall deliver a number of Early Settlement Shares equal to the quotient of (I) the relevant Early Settlement Payment divided by (II) a per share value, determined by MSCO in a commercially reasonable manner and which may be based on indicative bids from institutional “accredited investors” (as defined in Rule 501 under the Securities Act of 1933, as amended (the “Securities Act”)) and (B) the provisions of Sections 8(a)(vii) –(x) shall apply to the Early Settlement Shares delivered pursuant to this Section 8(b)(v).  For purposes of applying the foregoing, the Registered Share Delivery Date referred to in 8(a)(vii) shall be the date on which Issuer delivers the Early Settlement Shares.

(c)  The provisions of Section 8(b) shall apply to any then-current Settlement Balance if (i) on any given day, Issuer cannot satisfy any of the conditions of Section 8(a) or (ii) for a period of at least ten (10) consecutive Exchange Business Days, MSCO has determined that it is inadvisable to effect sales of Registered Securities.

(d)  If Issuer elects to deliver Early Settlement Shares to satisfy its payment obligation of an Early Settlement Payment, then, if necessary, Issuer shall use its best efforts to cause the number of authorized but unissued Shares of Common Stock to be increased to an amount sufficient to permit Issuer to fulfill its obligations to satisfy its payment obligation of an Early Settlement Payment by delivering Early Settlement Shares.

9.  Special Provisions for Merger Events.  Notwithstanding anything to the contrary herein or in the Equity Definitions, to the extent that an Announcement Date for a potential Merger Transaction occurs during the term of this Transaction:

(a) As soon as practicable following the public announcement of such potential Merger Transaction, Issuer shall provide MSCO with written notice of such announcement;

(b) Promptly after request from MSCO, Issuer shall provide MSCO with written notice specifying (i) Issuer's average daily Rule 10b-18 Purchases (as defined in Rule 10b-18) during the three full calendar months immediately preceding the Announcement Date that were not effected through MSCO or its affiliates and (ii) the number of Shares purchased pursuant to the block purchase proviso in Rule 10b-18(b)(4) under the Exchange Act for the three full calendar months preceding the Announcement Date.  Such written notice shall be deemed to be a certification by Issuer to MSCO that such information is true and correct.  Issuer understands that MSCO will use this information in calculating the trading volume for purposes of Rule 10b-18; and

(c) MSCO in its sole discretion may extend the Calculation Period to account for any reduction in the number of Shares that could be purchased on each day during the Calculation Period in compliance with Rule 10b-18 following the Announcement Date.

"Merger Transaction" means any merger, acquisition or similar transaction involving a recapitalization of Issuer as contemplated by Rule 10b-18(a)(13)(iv) under the Exchange Act.

10.  Seller Adjustments.  In the event that Seller reasonably determines that it is appropriate with regard to any legal, regulatory or self-regulatory requirements or related policies and procedures promulgated by a governmental or self-regulatory entity (including, without limitation, Rule 10b-18, Rule 10b-5, Regulation 13D-G and Regulation 14E, “Requirements”), for Seller to refrain from purchasing Shares or to purchase fewer than the number of Shares Seller would otherwise purchase on any Trading Day during the duration of this Transaction, then Seller may, in its discretion, elect that the Initial Hedge Period or the Calculation Period, as the case may be, be suspended and, if appropriate, extended with regard to any Requirements. Seller shall notify the Issuer upon the exercise of Seller’s rights pursuant to this Section 10 and shall subsequently notify the Issuer on the day Seller believes that the circumstances giving rise to such exercise have changed.  If the Initial Hedge Period or the Calculation Period is suspended pursuant to this Section 10, at the end of such suspension Seller shall determine the number of Trading Days remaining in the Calculation Period, as appropriate, and the terms of this Transaction shall be adjusted as set forth above under “Method of Adjustment.”

11.  Covenants.

(a) The Buyer covenants and agrees:

(i) that during the term of this Agreement, neither it nor any “affiliated purchaser” (as defined in Rule 10b-18) shall directly or indirectly (which shall be deemed to include the writing or purchase of any cash-settled derivative instrument) purchase Shares (or any security convertible into or exchangeable for Shares) or agree to purchase Shares where a valuation, hedging or averaging period or similar such period begins or potentially begins prior to final settlement under this Transaction, except in accordance with Section 14 hereof;

(ii) that it is not relying, and has not relied, upon Seller or any of its representatives or advisors with respect to the legal, accounting, tax or other implications of this Agreement and that it has conducted its own analyses of the legal, accounting, tax and other implications of this Agreement, and that Seller and its affiliates may from time to time effect transactions for their own account or the account of customers and hold positions in securities or options on securities of the Buyer and that Seller and its affiliates may continue to conduct such transactions during the term of this Agreement; and

(iii)  that it (and any other person in respect of which the Buyer would be an “affiliated purchaser” (as defined in Regulation M under the Exchange Act (“Regulation M”)) shall not engage in a “distribution” (as defined in Regulation M) in respect of the Shares or any security for which the Shares are a “reference security” (as defined in Regulation M) during the Calculation Period, except in accordance with Section 14 hereof.

(b)        During the Initial Hedge Period, MSCO will purchase Shares to establish its initial hedge position in compliance with the limitations set forth in clauses (b)(2), (b)(3), (b)(4) and (c) of Rule 10b-18 under the Exchange Act, as if such rule could be applied to such purchases and to the extent compliance is within the control of MSCO.

12.  Representations, Warranties and Acknowledgments.

(a) The Buyer hereby represents and warrants to Seller that:

(i)  as of the date hereof, the Buyer is not in possession of any material, non-public information with respect to the Buyer or any of its securities, and is entering into this Agreement in good faith and not as part of a plan or scheme to evade the prohibitions of Rule 10b5-1 of the Exchange Act (“Rule 10b5-1”);

(ii)  the transactions contemplated by this Confirmation have been authorized under Buyer’s publicly announced program to repurchase Shares;

(iii)  the Buyer is not entering into this Agreement to facilitate a distribution of the Shares (or any security convertible into or exchangeable for Shares) or in connection with a future issuance of securities except pursuant to the Buyer’s employee benefit plans and dividend reinvestment plan or other publicly disclosed transaction;

(iv)  the Buyer is not entering into this Agreement to create actual or apparent trading activity in the Shares (or any security convertible into or exchangeable for Shares) or to raise or depress the price of the Shares (or any security convertible into or exchangeable for Shares) for the purpose of inducing the purchase or sale of such securities by others; Seller acknowledges that the Buyer is relying on the accuracy of Seller’s representation in Section 12(c) in making the representation in this Section 12(a)(iv); and

(v)  the Buyer is as of the date hereof, and after giving effect to the transactions contemplated hereby will be, solvent, and the Buyer is not, as of the date hereof, incurring an avoidable transfer as described in Section 548(a)(1)(B) of the Bankruptcy Code (as defined below).

(b)  Seller and the Buyer each hereby acknowledges that any transactions by Seller in the Shares will be undertaken by Seller, as the case may be, as principal for its own account.  All of the actions to be taken by Seller in connection with this Agreement, shall be taken by Seller independently and without any advance or subsequent consultation with the Buyer.

(c)  Seller hereby represents and warrants to the Buyer that Seller is not entering into this Agreement to create actual or apparent trading activity in the Shares (or any security convertible into or exchangeable for Shares) or to raise or depress the price of the Shares (or any security convertible into or exchangeable for Shares) for the purpose of inducing the purchase or sale of such securities by others; the Buyer acknowledges that Seller is relying on the accuracy of the Buyer’s representation in Section 12(a)(iv) in making the representation in this Section 12(c).

13.  Acknowledgements of Buyer Regarding Hedging and Market Activity.  Buyer agrees, understands and acknowledges that:

 

(a)

during the period from (and including) the Trade Date to (and including) the Settlement Date, Seller and its affiliates may buy or sell Shares or other securities or buy or sell options or futures contracts or enter into swaps or other derivative securities in order to adjust its hedge position with respect to the transactions contemplated by this Transaction;

 

(b)	Seller and its affiliates also may be active in the market for the Shares other than in connection with hedging activities in relation to the transactions contemplated by this Transaction;

 

(c)	Seller shall make its own determination as to whether, when and in what manner any hedging or market activities in the Issuer’s securities shall be conducted and shall do so in a manner that it deems appropriate to hedge its price and market risk with respect to 10b-18 VWAP; and

 

(d)	any market activities of Seller and its affiliates with respect to the Shares may affect the market price and volatility of the Shares, as well as the 10b-18 VWAP, each in a manner that may be adverse to Buyer.

14. Regulation M Distributions; Issuer Rule 10b-18 Purchases; Suspension of the Initial Hedge Period.

       (a)  If Buyer concludes that during the Calculation Period it (and any other person in respect of which the Buyer would be an “affiliated purchaser” (as defined in Regulation M)) will be engaged in a distribution of the Shares for purposes of Regulation M, Buyer agrees that it will notify Seller of the commencement of the restricted period for purposes of Regulation M.  The Calculation Period will be suspended for the duration of such restricted period and extended by a number of Observation Dates equal to the number of Observation Dates in such restricted period.  With respect to each such distribution, the Calculation Agent will determine in good faith and in a commercially reasonable manner the economic effect of such event and the aforementioned extension of the Calculation Period on the theoretical value of the Transaction (including without limitation any change in volatility, expected dividends, stock loan rate or liquidity relevant to the Shares or to the Transaction, but not, for the avoidance of doubt, any such change that had occurred prior to such event), and the Calculation Agent will adjust the terms of the Transaction to reflect such economic effect.  In connection with each such distribution, the Buyer shall represent, as of the date of commencement of the relevant restricted period and as of the date immediately following completion of such restricted period, that the Buyer is not in possession of any material, non-public information with respect to the Buyer or any of its securities, and has entered into this Agreement in good faith and not as part of a plan or scheme to evade the prohibitions of Rule 10b5-1.

    (b)  Section 11(a) hereof shall not (i) limit the Buyer’s ability, pursuant to its employee incentive plan, to re-acquire Shares in connection with the related equity transactions, (ii) limit Buyer’s ability to withhold shares to cover tax liabilities associated with such equity transactions or (iii) limit Buyer’s ability to grant stock and options to “affiliated purchasers” (as defined in Rule 10b-18) or the ability of such affiliated purchasers to acquire such stock or options, in connection with the Buyer’s compensation policies for directors, officers and employees, and in connection with any such purchase Buyer will be deemed to represent to Seller that such purchase does not constitute a “Rule 10b-18 Purchase” (as defined in Rule 10b-18).

     (c)  Notwithstanding Section 11(a), the Buyer or an “affiliated purchaser” (as defined in Rule 10b-18) may effect Rule 10b-18 Purchases of Shares or other purchases of Shares, derivative instruments relating to the Shares or any security convertible into or exchangeable for Shares during the Calculation Period so long as they are effected through Seller and on terms acceptable to Seller.

(i)  In connection with the foregoing, Seller hereby agrees with the Buyer that, upon written request from the Buyer, the parties hereto will enter into a Rule 10b-18- and Rule 10b-5-compliant plan, with terms consistent with Seller’s existing market practices, pursuant to which Seller will agree to use “commercially reasonable efforts” to effect Rule 10b-18 Purchases for the Buyer during the Calculation Period in amounts up to the volumes specified in Schedule I hereto, depending on date(s) planned for such repurchases, as also specified in Schedule I hereto; provided, however, that any such Rule 10b-18- and Rule 10b-5-compliant plan will contemplate a daily target number of Shares to be purchased over the course of an entire Trading Day and the refusal by Seller to enter into a plan without such daily target and Trading Day features shall not be deemed an “unreasonable refusal” for purposes of Section 14(d) below.  In addition, the Buyer hereby acknowledges and agrees that as of the date of each such plan, the Buyer will be required to represent in such plan that it is not in possession of any material, non-public information with respect to the Buyer or any of its securities, and has entered into the plan in good faith and not as part of a plan or scheme to evade the prohibitions of Rule 10b5-1.

   (d)  In the event that Seller unreasonably refuses to enter into a Rule 10b-18- and Rule 10b-5-compliant plan contemplated in Section 14(c)(1) above, the Buyer may elect to effect Rule 10b-18 Purchases with a party other than Seller by written notice to Seller of its intention to effect such purchases no later than 5:00 p.m. on the Trading Day immediately preceding the first day on which such purchases may occur.  Such notice shall also specify the maximum time period over which such purchases may occur (the “Section 14(d) Suspension Period”).  The parties hereto agree that the Calculation Period shall be suspended for the entirety of each Section 14(d) Suspension Period and extended by the number of Observation Dates in such Section 14(d) Suspension Period.  With respect to each election to purchase shares that results in a Section 14(d) Suspension Period, the Calculation Agent will determine in good faith and in a commercially reasonable manner the economic effect of such event and the aforementioned extension of the Calculation Period on the theoretical value of the Transaction (including without limitation any change in volatility, expected dividends, stock loan rate or liquidity relevant to the Shares or to the Transaction, but not, for the avoidance of doubt, any such change that had occurred prior to such event), and the Calculation Agent will adjust the terms of the Transaction to reflect such economic effect.  In connection with each Section 14(d) Suspension Period, the Buyer shall represent in the aforementioned related notice to Seller that as of the date of such notice the Buyer is not in possession of any material, non-public information with respect to the Buyer or any of its securities, and has entered into this Agreement in good faith and not as part of a plan or scheme to evade the prohibitions of Rule 10b5-1.  Furthermore, no purchases pursuant to this Section 14(d) may be made by during the Blackout Period (as such term is defined in Schedule I).

15. Bankruptcy

   (a)  The parties hereto agree and acknowledge that Seller is a “financial participant” within the meaning of Section 101(22) of Title 11 of the United States Code (the “Bankruptcy Code”).  The parties hereto further agree and acknowledge that this Transaction is either (i) a “securities contract” as such term is defined in Section 741(7) of the Bankruptcy Code, in which case each payment and delivery made pursuant to this Transaction is a “settlement payment”, as such term is defined in Section 741(8) of the Bankruptcy Code, and that Seller is entitled to the protections afforded by, among other sections, Sections 362(b)(6), 546(e) and 555 of the Bankruptcy Code, or (ii) a “swap agreement”, as such term is defined in Section 101(53B) of the Bankruptcy Code, in which case each party is a “swap participant”, as such term is defined in Section 101(53C) of the Bankruptcy Code, and that Seller is entitled to the protections afforded by, among other sections, Sections 362(b)(17), 546(g) and 560 of the Bankruptcy Code.

16.  Disclosure; Rule 10b5-1 Plan; Calculations

   (a)  Seller and Issuer hereby agree and acknowledge that Seller has authorized the Issuer to disclose this Transaction to any and all persons, and there are no express or implied agreements, arrangements or understandings to the contrary, and authorizes the Issuer to use any information that the Issuer receives or has received with respect to this Transaction in any manner.

   (b)  It is the intent of the parties that this Transaction comply with the requirements of Rule 10b5-1(c)(1)(i)(A) and (B) and this Transaction shall be interpreted to comply with the requirements of Rule 10b5-1(c).  Buyer will not seek to control or influence Seller to make “purchases or sales” (within the meaning of Rule 10b5-1(c)(1)(i)(B)(3)) under this Transaction, including, without limitation, Seller’s decision to enter into any hedging transactions.

   (c)  Promptly following any event where the Calculation Agent adjusts the terms of this Transaction as contemplated by this Confirmation or the Equity Definitions, the Calculation Agent shall provide the Issuer with written information that shows, in reasonable detail, the Calculation Agent's computations and shall make knowledgeable employees available to the Issuer to discuss such computations.

17.  Treatment in Bankruptcy; No Setoff; No Collateral.

   (a)  In the event the Buyer becomes the subject of proceedings (“Bankruptcy Proceedings”) under the U.S. Bankruptcy Code or any other applicable bankruptcy or insolvency statute from time to time in effect, any rights or claims of Seller hereunder in respect of this transaction shall rank for all purposes no higher than, but on a parity with, the rights or claims of holders of Shares, and Seller hereby agrees that its rights and claims hereunder shall be subordinated to those of all parties with claims or rights against the Buyer (other than common stockholders) to the extent necessary to assure such ranking. Without limiting the generality of the foregoing, after the commencement of Bankruptcy Proceedings, the claims of Seller hereunder shall for all purposes have rights equivalent to the rights of a holder of a percentage of the Shares equal to the aggregate amount of such claims (the “Claim Amount”) taken as a percentage of the sum of (i) the Claim Amount and (ii) the aggregate fair market value of all outstanding Shares on the record date for distributions made to the holders of such Shares in the related Bankruptcy Proceedings.  Notwithstanding any right it might otherwise have to assert a higher priority claim in any such Bankruptcy Proceedings, Seller shall be entitled to receive a distribution solely to the extent and only in the form that a holder of such percentage of the Shares would be entitled to receive in such Bankruptcy Proceedings, and, from and after the commencement of such Bankruptcy Proceedings, Seller expressly waives (i) any other rights or distributions to which it might otherwise be entitled in such Bankruptcy Proceedings in respect of its rights and claims hereunder and (ii) any rights of setoff it might otherwise be entitled to assert in respect of such rights and claims.

   (b)  Notwithstanding any provision of this Agreement or any other agreement between the parties to the contrary, neither the obligations of the Buyer nor the obligations of Seller hereunder are secured by any collateral, security interest, pledge or lien.

18.  Share Cap.  Notwithstanding any other provision of this Agreement to the contrary, in no event shall the Buyer be required to deliver to Seller a number of Shares that exceeds the Share Cap (as specified in Schedule I), subject to reduction by the number of Shares delivered hereunder by the Buyer on any prior date.

19.  Account Details:

Account for Payments to MSCO:

To be provided separately

Account for Payments to Issuer:

To be provided by Issuer

 

 

_________________________________________________________________________________

Please confirm that the foregoing correctly sets forth the terms of our agreement by executing this Confirmation and returning it to us by facsimile to the number provided on the attached facsimile cover page.

Confirmed as of the date first written above:

FOREST LABORATORIES, INC.	MORGAN STANLEY & CO. LLC
By:   /s/ Francis I. Perier Jr.                                      Name:    Francis I. Perier, Jr. Title:      Executive Vice President, Finance and Administration                and Chief Financial Officer	By:   /s/ Serkan Savasogin                                   Name:    Serkan Savasogin Title:      Managing Director