Proxy Statement Pursuant to Section 14(a) of
The Securities Exchange Act of 1934
(Amendment No. )
☐ 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.
***PRELIMINARY PROXY STATEMENT DATED
SEPTEMBER 20, 2016—SUBJECT TO COMPLETION***
Starboard Value and Opportunity Master
Fund Ltd and the other participants in this solicitation (collectively, “Starboard” or “we”) beneficially
own a total of 6,031,450 shares, or approximately 9.83%, of the outstanding common stock, no par value per share (the “Common
Stock”), of Depomed, Inc., a California corporation (“Depomed” or the “Company”), making us one of
the Company’s largest shareholders.
The holders of shares of Common Stock
entitled to cast not less than 10% of the votes have validly called a special meeting of Depomed shareholders (the “Special
Meeting”) pursuant to the General Corporation Law of the California Corporations Code (the “CGCL”) and the Company’s
Amended and Restated Bylaws (the “Bylaws”) to vote on a set of proposals which, if approved, would have the effect
of removing and replacing the Company’s Board of Directors (the “Board”). Starboard has set November 15, 2016
as the date for the Special Meeting to be held.
The upcoming Special Meeting marks
a critical opportunity for shareholders at Depomed to elect a new Board that is both tremendously qualified and excited to dramatically
improve the governance, oversight, and value of the Company for the benefit of all shareholders. The current Board has demonstrated
a blatant disregard for the best interests of shareholders through a series of actions aimed at severely suppressing shareholder
rights. This was clearly evident in the actions taken by the Board in responding to the acquisition offer by Horizon Pharma plc
in 2015 and became even more evident earlier this year when the Board stealthily attempted to eliminate certain shareholder rights
under the guise of a Delaware reincorporation proposal. Over the past several months, we have publicly expressed our significant
concerns regarding the Board’s serious corporate governance deficiencies, questionable capital allocation decisions, and
actions to stymie strategic interest in acquiring Depomed. In combination, these concerns have led us to conclude that significant
and urgent change is needed at Depomed.
As shareholders, we should not be left
to wonder what shareholder-unfriendly action the current Board may seek to take next. Instead, we have the ability now to ensure
that our interests as the true owners of Depomed are appropriately represented and protected in the boardroom, and that the Board
takes the necessary steps to help the Company’s shareholders realize maximum value for their investment. It is time for
the current Board to be held accountable for its actions, and for a new board of directors to be put in place with a commitment
to substantially improve Depomed for the benefit of all shareholders.
We understand that it is an extraordinary
step to ask shareholders to replace an existing board of directors. However, this is not the first situation we have faced where
an existing board’s egregious corporate governance practices and violations of shareholder trust made it necessary to elect
a new board of directors. At Darden Restaurants, Inc. (“Darden Restaurants”), we similarly encountered a board of
directors that exhibited a disregard for the best interests of shareholders. There we were successful in our effort to replace
the existing board with a group of twelve world-class directors who implemented a turnaround and ultimately put Darden Restaurants
on the right path towards significant shareholder value creation. Like Darden Restaurants, we are excited about the prospect of
a bright future for Depomed under the direction of a newly constituted and extraordinarily capable Board. We look forward to sharing
with you soon our comprehensive plan for Depomed.
We have gone to great lengths in selecting
a group of director nominees and advisors who possess unique skill sets and perspectives directly relevant to Depomed’s business
and current challenges, including pharmaceutical operations, healthcare regulatory, finance, board governance and oversight, and
mergers and acquisitions expertise. Collectively, our advisors and slate of director nominees have decades of experience serving
on well-performing public company boards. Importantly, this group of nominees, if elected at the Special Meeting, together with
our highly qualified advisors, is prepared to serve the shareholders of Depomed and to ensure that the interests of all shareholders
are of paramount importance.
In order to maintain a degree
of continuity amidst the required change that we believe is desperately needed at Depomed, in the event that the current Board
is entirely removed and all six of our director candidates are elected at the Special Meeting, the new Board members would be
willing to increase the size of the Board up to eleven (11) members in order to appoint not only our two (2) highly qualified
advisors, Robert G. Savage and James L. Tyree, but also to add back up to three (3) incumbent directors to the Board. In this
event, we expect that our director candidates would meet with certain of the incumbent directors following the Special Meeting
to determine which ones have the qualifications, experience and perspectives that will best complement the new Board members.
Any decision would depend upon not only the credentials of such incumbent directors, but also upon such incumbent directors’
willingness to serve on the Board together with the new directors. As a reminder, we utilized this construct successfully at Darden
Restaurants where we replaced the entire board of directors and then added back one of the prior board members.
We urge you to carefully consider the information
contained in the attached Proxy Statement and then support our efforts at the Special Meeting by signing, dating, and returning
the enclosed WHITE proxy card today. The attached Proxy Statement and the enclosed WHITE proxy card are first being furnished to
the shareholders on or about [_______ __], 2016.
If you have any questions or require any assistance
with your vote, please contact Okapi Partners LLC, which is assisting us, at its address and toll-free numbers listed below.
IF YOU HAVE ALREADY SENT A PROXY CARD FURNISHED BY COMPANY
MANAGEMENT OR THE BOARD, YOU MAY REVOKE THAT PROXY AND VOTE ON EACH OF THE PROPOSALS DESCRIBED IN THIS PROXY STATEMENT BY SIGNING,
DATING AND RETURNING THE ENCLOSED WHITE PROXY CARD. THE LATEST DATED PROXY IS THE ONLY ONE THAT COUNTS. ANY PROXY MAY BE REVOKED
AT ANY TIME PRIOR TO THE SPECIAL MEETING BY DELIVERING A WRITTEN NOTICE OF REVOCATION OR A LATER DATED PROXY FOR THE SPECIAL MEETING
OR BY VOTING IN PERSON AT THE SPECIAL MEETING.
IMPORTANT
Your vote is important, no matter how few
shares of Common Stock you own. Starboard urges you to sign, date, and return the enclosed WHITE proxy card today to
vote FOR the Proposals on the agenda for the Special Meeting.
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If your shares of Common Stock are registered in your own name, please sign and date the enclosed
WHITE
proxy card and return it to Starboard, c/o Okapi Partners LLC (“Okapi Partners”) in the enclosed postage-paid envelope today.
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If your shares of Common Stock are held in a brokerage account or bank, you are considered the beneficial owner of the shares of Common Stock, and these proxy materials, together with a
WHITE
voting form, are being forwarded to you by your broker or bank. As a beneficial owner, you must instruct your broker, trustee or other representative how to vote. Your broker cannot vote your shares of Common Stock on your behalf without your instructions.
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Depending upon your broker or custodian, you may be able to vote either by toll-free telephone or by the Internet. Please refer to the enclosed voting form for instructions on how to vote electronically. You may also vote by signing, dating and returning the enclosed voting form.
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In addition to delivering printed versions of
this Proxy Statement and the
WHITE
proxy card to all shareholders by mail, this Proxy Statement and
WHITE
proxy card are also available on the Internet. You have the ability to access and print this Proxy Statement and the
WHITE
proxy card at [www.okapivote.com/depomed]. Since only your latest dated proxy card will count, we urge you not to return any proxy
card you receive from the Company. Even if you return the management proxy card marked “withhold” as a protest
against the incumbent directors, it will revoke any proxy card you may have previously sent to us. So please make certain
that the latest dated proxy card you return is the
WHITE
proxy card.
OKAPI PARTNERS LLC
1212 Avenue of the
Americas, 24th Floor
New York, NY 10036
(212) 297-0720
Shareholders
Call Toll-Free at:
(877) 274-8654
E-mail: info@okapipartners.com
QUESTIONS AND ANSWERS REGARDING
THE SPECIAL MEETING
The following are answers to some of the questions you, as
a Depomed shareholder, may have with respect to Starboard’s solicitation of revocable proxies for the Special Meeting. The
following is not a substitute for the information contained in this Proxy Statement, and the information contained below is qualified
in its entirety by reference to the more detailed descriptions and explanations contained elsewhere in this Proxy Statement. We
urge you to read this Proxy Statement carefully and in its entirety.
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Q:
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Who is making the solicitation of revocable proxies for the Special Meeting?
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A:
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The solicitation is being made by Starboard. Please see the section titled “Certain Information Regarding the Participants”
in this Proxy Statement below for additional information regarding the participants in the solicitation under SEC rules.
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Q:
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How many shares of Common Stock does Starboard own?
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A:
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The members of Starboard, including the Nominees, beneficially own in the aggregate 6,031,450 shares of Common Stock, representing
approximately 9.83% of the Company’s outstanding shares.
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Q:
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What are we asking you to do?
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A:
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We are asking you to vote “
FOR
” the Proposals outlined above at the Special Meeting
for purposes of seeking to remove and replace the current Board. Please see the section titled “Our Proposals for
the Special Meeting” of this Proxy Statement below for additional details regarding the Proposals.
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Q:
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Why are we soliciting your vote on the Proposals?
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A:
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As described in more detail in the “Reasons for the Solicitation” section of this Proxy Statement below, given
the serious corporate governance deficiencies, questionable capital allocation decisions, and egregious actions taken by the Board
aimed at limiting shareholder rights, we believe that significant change is required on the Board to ensure that Depomed is acting
in the best interest of all shareholders. Accordingly, we are soliciting Depomed shareholders to consider and vote on Proposal
1 to remove the entire current Board, on Proposal 2 to fix the size of the current Board, on Proposal 3 to elect the Nominees,
and on Proposal 4 to prevent the Board from making any further changes to the Bylaws to limit shareholder rights.
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Q:
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Why are we seeking to remove the entire Board under Proposal 1?
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A:
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While we firmly believe replacement of the entire Board is warranted, you should understand that we do not practically have
any other option for seeking Board composition changes at the Special Meeting but to seek the removal of the entire Board. This
is because certain provisions under the CGCL and the Bylaws make it extremely difficult, if not virtually impracticable, to remove
any fewer than all of the Company’s directors. Under these provisions, if even just one Depomed director were not to be removed
at the Special Meeting, then a director-protecting cumulative voting provision is triggered with respect to every other director,
thereby making the voting threshold required to remove any directors extraordinarily high and virtually impracticable.
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Q:
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Are we taking any steps to thoughtfully address any continuity issues and alleviate any concerns you may have about the risk
of unintended consequences?
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A:
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Yes. In order to maintain
a degree of continuity amidst the required change that we believe is desperately needed at Depomed, in the event that the current
Board is entirely removed and all six of our Nominees are elected at the Special Meeting, the new Board members would be willing
to increase the size of the Board up to eleven (11) members in order to appoint not only our two (2) highly qualified Advisors,
Robert G. Savage and James L. Tyree, but also to add back up to three (3) incumbent directors to the Board. In this event, we
expect that our director candidates would meet with certain of the incumbent directors following the Special Meeting to determine
which ones have the qualifications, experience and perspectives that will best complement the new Board members. Any decision
would depend upon not only the credentials of such incumbent directors, but also upon such incumbent directors’ willingness
to serve on the Board together with the new directors. As a reminder, we utilized this construct successfully at Darden Restaurants
where we replaced the entire board of directors and then added back one of the prior board members.
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Q:
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Is the purpose of the Special Meeting for us to advocate for a particular transaction, or any transaction at all?
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A:
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No. We are not currently advocating for any one particular transaction, or any transaction at all, but we firmly believe that
Board change is necessary to best represent the interests of all shareholders as it relates to the ongoing business and any potential
transaction opportunities in the future. Given the current Board’s history of actions, we do not believe you can take the
risk that the Board further impairs your shareholder rights.
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Q:
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When and where is the Special Meeting to be held?
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A:
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As the shareholder requesting the Special Meeting, Starboard has set 10:00 a.m., Pacific Daylight Time, on November 15, 2016
as the time and date for the Special Meeting to be held, and the Company has indicated that the Special Meeting will be held at
[__________].
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Q:
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What effect might passage of the Proposals at the Special Meeting and/or the election of any Nominees have under the change
in control provisions of the Company’s publicly filed agreements?
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A:
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Please see the section titled “Certain Effects Related to This Solicitation” of this Proxy Statement for discussion
of such possible effects.
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Q:
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Who can vote at the Special Meeting?
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A:
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Only holders of record at the close of business on the Record Date will be entitled to vote in person or by proxy at the Special
Meeting.
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Q:
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What will constitute a quorum at the Special Meeting?
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A:
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A majority of the outstanding shares of Common Stock entitled to vote at the Special Meeting must be present in person or by
proxy in order for there to be a quorum at the Special Meeting.
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Q:
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How many shares must be voted in favor of each of the Proposals to approve them and each Nominee to elect him or her pursuant
to Proposal 3 at the Special Meeting?
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A:
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Proposals 1, 2 and 4 require the approval of a majority of the outstanding shares of Common Stock entitled to vote. Proposal
3, which is contingent upon the passage of Proposal 1, requires the approval of a majority of the shares represented and voting
at the Special Meeting, assuming a quorum is present (in which shares voting affirmatively also constitute at least a majority
of the required quorum).
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Q:
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Will there be cumulative voting with respect to the removal of directors pursuant to Proposal 1 or the election of any Nominees
pursuant to Proposal 3, assuming Proposal 1 is passed at the Special Meeting?
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A:
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Under Depomed’s Amended and Restated Articles of Incorporation, cumulative voting with respect to director
elections has been eliminated. With respect to the removal of directors, however, cumulative voting may be triggered under
Section 303(a)(1) of the CGCL. As discussed in more detail under the section titled “Our Proposals for the Special
Meeting” of this Proxy Statement below, Section 303(a)(1) of the CGCL provides that unless the Board is removed in its
entirety, no director can be removed if the votes cast against removal would be sufficient to elect the director if voted
cumulatively, and the number of directors authorized at the time of the director’s most recent election were then being
elected. Effectively, if shareholders vote against the removal of even just one Depomed director at the Special Meeting, then
this director-protecting cumulative voting provision is triggered with respect to every director, thereby making the voting
threshold required to remove any directors extraordinarily high. Accordingly, it is critically important for shareholders to
understand that the only practical way to effect any Board changes at the Special Meeting is by voting to remove the entire
Board.
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Q:
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How may Depomed shareholders vote their shares?
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A:
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See the section titled “Special Meeting Voting Procedures”
in this Proxy Statement below for the four ways Depomed shareholders may vote at the
Special Meeting: by promptly mailing in the
WHITE
Proxy Card, by telephone, via
the Internet and by attending the Special Meeting and voting in person.
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Q:
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How will my shares be voted if the enclosed WHITE Proxy Card is signed and returned but no specific voting direction is given?
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A:
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If you are a holder of record of shares of Common Stock and properly
sign and return the enclosed
WHITE
Proxy Card, but do not specify how to vote,
Starboard intends to vote such proxies “
FOR
” each of the Proposals
thereon.
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Q:
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Aside from voting authority on the Proposals, may the enclosed WHITE Proxy Card, if signed and returned, grant Starboard any
other authority in respect of my shares of Common Stock?
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A:
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Yes. Pursuant to the
WHITE
Proxy Cards, we are also requesting
discretionary authority to oppose and vote against any proposals other than the Proposals
that may come before the Special Meeting.
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Q:
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If my shares of Common Stock are held in “street name” by my broker or other nominee, will my broker or other nominee
vote my shares with respect to any of the Proposals?
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A:
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No, your broker or other nominee will not vote your shares of Common Stock on your behalf on any of the Proposals unless you
provide instructions on how to vote.
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Without your instructions, your street name shares
will not be voted in favor of the Proposals, which will have the same effect as voting “AGAINST” each of the Proposals.
Accordingly, it is critical that you promptly give instructions to your broker or other nominee to vote on the Proposals.
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Starboard urges you to confirm in writing your instructions to your broker or other nominee as soon as possible and
provide a copy of those instructions to Starboard c/o Okapi Partners LLC, our proxy solicitor (“Okapi”), at
1212 Avenue of the Americas, 24th Floor, New York, NY 10036, so that Starboard will be aware of all instructions given and
can attempt to ensure that those instructions are followed.
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Q:
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What effect will an abstention have on the vote on the Proposals?
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A:
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Abstentions will have the effect of a vote “AGAINST” each of the Proposals.
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Q:
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How may WHITE Proxy Cards be revoked?
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A:
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Company shareholders who execute and deliver
WHITE
Proxy Cards
solicited on behalf of Starboard in connection with the Proposals at the Special Meeting
will be permitted to revoke such proxies at any time before the proxy is exercised at
the Special Meeting by:
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delivering an instrument revoking the earlier proxy card, or a duly executed later-dated proxy card for the same shares, including
a Company-furnished proxy card, to Okapi at 1212 Avenue of the Americas,
24th Floor, New York, NY 10036;
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filing with the Company’s Corporate Secretary prior to the Special Meeting either a notice of revocation or a duly executed
later dated proxy for the same shares, including a Company-furnished proxy card;
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if you have voted
by telephone or through the Internet, calling the same toll-free number or by accessing
the same web site and following the instructions provided on the
WHITE
Proxy Card;
or
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voting in person at the Special Meeting.
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Please note that if your shares of Common Stock are held in street name by a broker or other nominee, you must follow the instructions
set forth in the instruction cards to revoke your earlier vote.
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Q:
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Who is paying for the solicitation of proxies for the Special Meeting?
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A:
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The entire expense of preparing and mailing this Proxy Statement and any other soliciting material and the total expenditures
relating to the solicitation of proxies for approval of the Proposals at the Special Meeting will be borne by Starboard.
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BACKGROUND AND PAST CONTACTS
The following is a chronology of events leading up to this
Proxy Statement:
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During 2015, Depomed took a series of shareholder-unfriendly steps to frustrate the attempts of Horizon Pharma plc (“Horizon”)
to negotiate an acquisition of Depomed. Specifically, in July of 2015, in response to an unsolicited proposal from Horizon to acquire
all of the outstanding shares of Depomed in an all-stock transaction, the Board (i) unilaterally adopted a poison pill with a 10%
trigger threshold (the “Poison Pill”) and (ii) amended and restated the Bylaws to make it significantly more difficult
and time-consuming for Depomed shareholders to call a special meeting of shareholders.
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On April 5, 2016, Depomed filed a preliminary proxy statement with the Securities and Exchange Commission (the “SEC”)
in connection with the 2016 Annual Meeting, which included a proposal to reincorporate the Company in Delaware (the “Reincorporation
Proposal”).
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On April 7, 2016, Starboard filed a Schedule 13D with the SEC disclosing combined beneficial and economic ownership interest
in approximately 9.8% of the outstanding shares of Common Stock. In the Schedule 13D, Starboard stated that it was extremely troubled
by the fact that management and the Board were seeking to further entrench themselves and further suppress shareholder rights under
the guise of the Reincorporation Proposal. Starboard also questioned why Depomed failed to disclose important features of the Reincorporation
Proposal that would severely limit certain shareholder rights in the section of the preliminary proxy that detailed the specifics
of the Reincorporation Proposal and instead included these provisions in appendices at the end of the preliminary proxy.
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On April 8, 2016, Starboard delivered a letter to Jim Schoeneck, President and Chief Executive Officer of the Company, expressing
significant concerns regarding what it deems as serious corporate governance deficiencies, questionable capital allocation decisions,
and egregious actions by the Board to stymie strategic interest. In the letter, Starboard also confirmed that it would shortly
commence the process to call a Special Meeting to preserve Starboard’s rights to seek the removal and replacement of the
current Board.
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On April 8, 2016, Starboard submitted to Depomed the documentation required under the Bylaws to request that the Board set
a record date for determining the shareholders entitled to call a special meeting (the “Initial Record Date Request Notice”),
to begin the process for calling the Special Meeting to consider the following proposals: (i) to remove from office the six (6)
members of the current Board, as well as any person appointed to the Board without shareholder approval up to and including the
date of the Special Meeting; (ii) to fix the number of members of the Board at six (6); (iii) if the current Board is removed,
to submit Peter A. Feld, James P. Fogarty, Mark R. Mitchell, Gavin T. Molinelli, Jeffrey C. Smith and Patrick Sullivan for election
to the Board by shareholders to fill the existing vacancies; and (iv) to repeal any amendment or provision of the Bylaws adopted
by the Board that changes the Bylaws, and to amend the Bylaws to eliminate the power of the Board to adopt, amend or repeal the
Bylaws from the date of the Special Meeting through 120 days following the date thereof.
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On April 12, 2016, Starboard filed an amendment to its Schedule 13D with the SEC disclosing combined beneficial and economic
ownership interest in approximately 9.9% of the outstanding shares of Common Stock.
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On April 14, 2016, Depomed issued a press release announcing its decision not to pursue the Reincorporation Proposal.
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On April 15, 2016, Starboard issued the following public statement in response to Depomed’s decision to withdraw its
Reincorporation Proposal:
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“We read with great interest
Depomed’s announcement yesterday that it has decided to withdraw its Delaware Reincorporation Proposal that was purposefully
designed to entrench the Board. We remain highly concerned by Depomed’s continued apparent willingness to mislead shareholders
about its true intentions with regard to the Reincorporation Proposal. To be abundantly clear, the Reincorporation Proposal was
an attempt by the Depomed Board to further suppress shareholder rights under the guise of a benign Delaware reincorporation.
After we highlighted Depomed’s
true, hidden agenda, with many of the material provisions buried in two appendices, the Board realized that it had no choice but
to abandon its Reincorporation Proposal. Yet, in its announcement yesterday, rather than be forthright about its reasons for withdrawing
the Proposal, Depomed alluded to removing the Proposal only to avoid 'a costly and distracting proxy contest'. To insinuate that
the reason it withdrew the Reincorporation Proposal was to avoid a proxy contest is completely disingenuous.
Based upon the Board's actions over
the past year, and reinforced by this recent, entrenchment attempt, we remain convinced that meaningful Board change is required
at Depomed. We acquired our position in Depomed because we believe that the Company is substantially undervalued and opportunities
exist to create significant value for shareholders. There has been no change to our intention to vigorously continue our pursuit
of replacing the existing Board with a slate of experienced, diverse, and independent director candidates that we believe will
better serve the Company and better protect the rights and best interests of all shareholders. We look forward to sharing more
details with shareholders in the coming weeks regarding our views on the Company and opportunities for value creation.”
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On April 25, 2016, Depomed issued a press release to announce that it has established the close of business on April 26, 2016
as the record date to determine shareholders entitled to request the Special Meeting proposed by Starboard. Depomed also sent a
letter to Starboard on April 25, 2016 stating, among other things, that it has amended its Shareholder Rights Plan to purportedly
allow Starboard to immediately submit its request for a proposed Special Meeting without conducting a public solicitation.
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On April 29, 2016, counsel for Depomed sent an email to counsel for Starboard reiterating the contents of Depomed’s April
25
th
letter, including Depomed’s one-time waiver to not set a new Request Record Date if Starboard were to modify
its slate of proposed nominees.
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On May 26, 2016, Starboard issued a press release and delivered a letter to Depomed shareholders announcing that it intends
to recommence the process for calling the Special Meeting for removing and replacing the Board with a modified slate of six highly
qualified director nominees.
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On May 26, 2016, Starboard withdrew its Initial Record Date Request Notice and Special Meeting proposals and delivered a new
record date request notice (the “Record Date Request Notice”) and Special Meeting proposals to Depomed.
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On May 26, 2016, Starboard filed its preliminary solicitation statement with the SEC in connection with its solicitation of
written requests from Depomed shareholders to call the Special Meeting (the “Special Meeting Request Preliminary Solicitation
Statement”).
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On May 31, 2016, Starboard filed an amendment to its Schedule 13D with the SEC disclosing its delivery of the Record Date Request
Notice to Depomed and its modified slate of six highly qualified director nominees.
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On June 6, 2016, Starboard filed Amendment No. 1 to its Special Meeting Request Preliminary Solicitation Statement.
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On June 23, 2016, Depomed issued a press release announcing that it has set August 19, 2016 as the record date for determining
shareholders entitled to submit written requests to call the Special Meeting (the “Request Record Date”) and proposing
to hold a special meeting called by its Board on October 28, 2016 that Depomed explained is intended to occur after resolution
of the Company’s ongoing NUCYNTA® patent litigation, which is expected no later than September 30, 2016.
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On July 26, 2016, Starboard issued a press release and delivered a letter to Depomed shareholders announcing that it has appointed
two exceptionally qualified former pharmaceutical executives as Advisors, Robert G. Savage and James L. Tyree,
to assist in its solicitation efforts to call the Special Meeting. Starboard explained in the letter that given the extensive requirements
under the Bylaws for calling the Special Meeting, the addition of any new nominees to its slate would effectively require it to
submit a new record date request notice to Depomed, thereby restarting the clock under the Bylaws for the Special Meeting. Starboard
also stated that if it is successful in removing and replacing the Board at the Special Meeting, Messrs. Savage and Tyree would
be invited to join the Board and that the new Board would be willing to increase the size of the Board to nine members (currently
there are six members; adding the Advisors would expand the Board to eight members) and add back one incumbent director in order
to maintain a degree of continuity amidst the required change that Starboard believes is needed at the Company. In the letter,
Starboard also announced that it will proceed with its original solicitation to call the Special Meeting by going through the procedures
required under the Bylaws by soliciting the Special Meeting Percentage given the Board’s inconsistent responses to Starboard’s
two record date request notices in order to ensure that shareholders have their voices heard and to prevent the Company from any
further attempts to manipulate Starboard’s Special Meeting process. Starboard explained in the letter that initially, the
Board responded promptly to Starboard’s Initial Record Date Request Notice by setting a record date of April 26, 2016, or
less than three weeks later, but then delayed its response to Starboard’s new Record Date Request Notice by setting a record
date of August 19, 2016, or close to three months after Starboard’s delivery of the Record Date Request Notice, which is
almost the full extent the Board is permitted to delay such an action under the Bylaws and in stark contrast to Jim Schoeneck’s
commentary to shareholders on April 25, 2016 that “the selection of an early meeting date is in the best interest of Depomed
and its shareholders.” Starboard stated that it sees the Board’s rationale of basing the prolonged meeting date on
the NUCYNTA litigation as a classic “bait-and-switch” as there was no mention of delaying the Special Meeting
until the outcome of the pending NUCYNTA patent litigation upon Starboard’s first placeholder nomination.
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On July 27, 2016, Starboard filed an amendment to its Schedule 13D with the SEC disclosing its delivery of the July 26
th
letter to Depomed shareholders and its appointment of the Advisors to assist in its efforts to call the Special Meeting given the
Advisors significant industry knowledge and experience.
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On August 15, 2016, Starboard filed Amendment No. 2 to the Special Meeting Request Preliminary Solicitation Statement.
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On August 17, 2016, Depomed delivered a letter to Starboard informing Starboard that Depomed would waive the information
requirements under the Bylaws for any shareholders requesting the Special Meeting, other than Starboard and its affiliates.
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On August 18, 2016, Starboard filed Amendment No. 3 to the Special Meeting Request Preliminary Solicitation Statement.
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On August 19, 2016, Starboard filed the Special Meeting Request Definitive Solicitation Statement.
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On September 7, 2016, Depomed notified Broadridge Financial Solutions of a September 27, 2016 record date for the Special Meeting.
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On September 16, 2016, Starboard delivered the Special Meeting Request and accompanying WHITE request cards from the
holders of shares of Common Stock entitled to cast not less than 10% of the votes at the Special Meeting in accordance with
the Bylaws requesting that the Special Meeting be called for November 15, 2016 at 10:00 a.m., Pacific Daylight Time.
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On September 19, 2016, Starboard delivered a letter to Depomed shareholders and issued a press release announcing that it has
delivered to Depomed more than the required consents to call the Special Meeting and has set November 15, 2016 as the date for
the Special Meeting. In the letter, Starboard reiterated its steadfast belief that a new Board is required to represent the best
interests of shareholders given
a series of shareholder-unfriendly actions by the Board over
the past two years. Starboard also stated that based on recent press reports, it appears that Depomed may have hired bankers to
explore a sale of the Company and that as previously publicly outlined by Starboard, it believes Depomed would be extremely attractive
to numerous potential acquirers, and while there exists an opportunity to significantly improve operations at the Company, an outright
sale may be the best option for unlocking shareholder value. Starboard further stated that it remains extremely concerned that
any potential sale process may not be undertaken with genuine intent, and therefore believes it is necessary for directors proposed
by Starboard to be involved in any sale process at the Board level to ensure that the Board is representing the best interests
of shareholders and that value is maximized. In addition, Starboard outlined a continuity plan in the letter for expanding the
Board to eleven members to add back up to three incumbent directors in addition to Starboard’s two highly qualified Advisors
if it is successful in replacing the Board at the Special Meeting.
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On September 19, 2016, the Company informed Starboard that in accordance with Starboard’s Special Meeting Request Form
and accompanying WHITE request cards, the Special Meeting will be held on November 15, 2016 at 10:00 a.m., local time, and that
the Record Date for the Special Meeting is the close of business on September 27, 2016.
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REASONS FOR THE SOLICITATION
WE BELIEVE THE CURRENT BOARD HAS FAILED
TO ACT IN THE BEST INTERESTS OF SHAREHOLDERS
We believe that Depomed is deeply undervalued and that significant
opportunities exist to create shareholder value based on actions within the control of the Board. We have significant concerns
regarding the manner in which Depomed is being governed by the current Board, including its troubling history of taking actions
aimed at limiting shareholder rights and the Company’s questionable capital allocation decisions.
In combination, these concerns have led us to conclude that the current Board is wholly incapable of making decisions that
are in the best interests of shareholders. We believe shareholders deserve a Board who collectively possess the objectivity, perspective,
and qualifications to make decisions that are in the best interests of shareholders.
We believe that urgent change is needed on the Board. We
are therefore soliciting your support for the Proposals at the Special Meeting to remove and replace the current Board with our
highly qualified Nominees. The Nominees and Advisors who we carefully selected possess unique skill sets and perspectives directly
relevant to Depomed’s business and current challenges, including pharmaceutical operations, healthcare regulatory, finance,
board governance and oversight, and mergers and acquisitions expertise.
Our highly qualified
Nominees are motivated to do what is best for the Company and its shareholders while ensuring that the interests of all shareholders
are of paramount importance.
We are Seriously Concerned with
the Board’s Track Record of Taking Egregious Actions Aimed at Limiting Shareholder Rights
We believe the Board has a disturbing history of taking actions
aimed at limiting shareholder rights in order to further entrench itself and management. In July of 2015, in response to an unsolicited
proposal from Horizon to acquire all of the outstanding shares of Depomed in an all-stock transaction, the Board (i) adopted the
Poison Pill and (ii) amended and restated the Bylaws to make it significantly more difficult and time-consuming for Depomed shareholders
to call a special meeting of shareholders. Notably, leading proxy voting advisory firms, Institutional Shareholder Services Inc.
(“ISS”) and Glass, Lewis & Co. (“Glass Lewis”), likewise expressed concerns with the Board’s
actions and supported Horizon’s efforts to call a special meeting of shareholders.
“Given that the poison pill
and unilateral bylaw amendments adopted by the Depomed board materially impact shareholder rights, shareholders should provide
consent FOR the special meeting requests.”
“The new bylaws adopted by the board do not
appear to strike an appropriate balance between the board's need for more time to evaluate hostile bids and shareholders' ability
to voice their views on strategic and governance decisions."
– ISS’ Report, dated September 26, 2015
“These amendments require
shareholders to initially request that the board set a request record date for determining shareholders entitled to request a special
meeting and require that shareholders representing at least 10% of the aggregate voting power submit requests to hold such meetings.
Upon receiving an initial record date request, the board could select a request record date up to 88 days in the future, and following
such record date, shareholders would have up to 30 days to submit requests. Assuming sufficient requests were received, only then
would the requested special meeting be called. In our view, this process appears to introduce unnecessary complexity and potential
delay and allows the board to act in a manner than infringes on the rights of shareholders to call special meetings in a timely
and reasonable fashion. Notably, in the case of the Removal and Bylaw Amendments Special Meeting and the Election Special Meeting,
the board set request record dates that are 87 days and 86 days, respectively, following the date of the requests submitted by
Horizon Pharma. In our view, the board has not provided any substantive justification for this delay, nor has it provided reasonable
explanation for why the power to set the record date so far in the future is necessary or in the interests of all shareholders,
in our view.”
– Glass Lewis’ Report, dated September 28, 2015
As a result of the Board’s actions, Horizon eventually
terminated its offer to acquire Depomed on November 20, 2015, after raising its offer to an all-stock value of $33.00 per share.
As of [_______ __], 2016, the closing price of Depomed’s Common Stock was $13.92 per share, or approximately [__]% of the
value of that final Horizon offer.
Unfortunately, the Board’s egregious actions have
continued beyond its efforts to stymie Horizon’s acquisition offers. As noted above, Depomed intended to present the Reincorporation
Proposal
to change Depomed’s state of incorporation from California to Delaware
at the 2016 Annual Meeting. Starboard thoroughly reviewed the Reincorporation Proposal and uncovered several related aspects of
it that Starboard believes clearly demonstrate that the Reincorporation Proposal was principally designed to further entrench
the Board by eliminating the ability of shareholders to call a special meeting for the purpose of removing and replacing current
Board members. As proposed by the Company, the Reincorporation Proposal would have:
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(i)
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eliminated altogether the ability of shareholders to call a special meeting to remove and replace
current Board members, as provided under the Board proposed Delaware Certificate of Incorporation;
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(ii)
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increased the solicitation requirement to call a special meeting of shareholders from 10% of the
voting power, as it currently stands under California law, to 25% of the voting power, as provided under the Board proposed Delaware
Bylaws;
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(iii)
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prevented shareholders, for all practical purposes, from commencing a special meeting request process
with respect to director elections within 180 days of any annual meeting; and
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(iv)
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granted the Board sole discretion and authority to effect a Delaware reincorporation at any time
prior to Depomed’s 2017 annual meeting of shareholders (the “2017 Annual Meeting).
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These were not typical or standard provisions that would
reasonably necessitate a reincorporation proposal. Rather, Starboard believes they were unconventional and carefully crafted provisions
specifically designed to limit shareholder rights and further entrench a Board that had already adopted the onerous and shareholder-unfriendly
special meeting Bylaw provisions in July 2015 to fend off an unsolicited proposal from Horizon. Compounding matters, Starboard
believes that the Board only withdrew the Reincorporation Proposal because Starboard publicly highlighted the grossly shareholder-unfriendly
aspects of the proposal, and the Board realized that it had no choice but to withdraw the Reincorporation Proposal.
Not surprisingly, the Board’s propensity to disregard shareholder rights has, in our view, only continued, which
is precisely why we have decided to proceed with our original solicitation to call the Special Meeting. As noted above, following
Depomed’s receipt of our Initial Record Date Request Notice on April 8, 2016, the Board responded promptly by setting a
record date for April 26th, or less than three weeks later. We believe that Depomed knew our Initial Record Date Request
Notice was a placeholder and that we would be revising our slate of nominees, which under Depomed’s onerous Bylaw provisions,
would require that we submit a new record date request notice. On May 26, 2016, we delivered the new Record Date Request
Notice with our updated Board slate. However, this time the Board responded by setting a record date of August 19,
2016, or close to three months later, which is almost the full extent the Board is permitted to delay such an action under the
Bylaws. This is in stark contrast to the commentary from Depomed to shareholders on April 25, 2016:
“Depomed believes that the selection of an early
meeting date is in the best interest of Depomed and its shareholders. Based upon Starboard’s stated goals of making
this an efficient process and its stated need to immediately bring to a vote the replacement of the entire Board, we encourage
you and your advisors to work collaboratively with us to hold the Special Meeting as soon as possible.” -
Jim Schoeneck,
Depomed CEO & President
We see the Board’s
rationale of basing the prolonged meeting date on the NUCYNTA litigation as a classic “bait-and-switch.” Upon
our first placeholder nomination, there was no mention of delaying the Special Meeting until the outcome of the pending NUCYNTA
patent litigation. However, as the most recent letter from Depomed to its shareholders details: “Depomed believes
the Company’s shareholders should know the outcome of the NUCYNTA patent litigation, clarifying the patent exclusivity of
the Company’s most important asset.” We believe that this stated reason for delaying the Special Meeting
is completely disingenuous.
We Have Serious Concerns with Depomed’s
Questionable Capital Allocation Decisions
Depomed management has stated that it intends to spend approximately
$100 million from 2016-2019 to develop cebranopadol, a compound with a storied past. Forest Laboratories, Inc. (a subsidiary of
Actavis plc) (“Forest Laboratories”) and Grünenthal GmbH (“Grünenthal”) had entered into a license
agreement for cebranopadol in December 2010, which included co-development and commercialization, with exclusive rights for Forest
Laboratories in the U.S. and Canada, while Grünenthal held the rights in Europe and the rest of the world. However, the license
agreement was terminated in December 2014. To date, and prior to Depomed’s ownership of the asset, seven Phase 2 trials had
been conducted on cebranopadol – two of which failed to show statistical significance – and neither Grunenthal nor
Forest Laboratories felt it was worth dedicating the resources necessary to initiate a Phase 3 program. Following the Company’s
recent Analyst and Investor Day, Starboard remained concerned with the discontinuation rates on cebranopadol, which, in Starboard’s
opinion, are shockingly high.
Further, in 2015, Depomed paid approximately $11.9 million
in legal fees associated with the defense of Horizon. Starboard cannot see any legitimate rationale for why the Board insisted
in proceeding with a lawsuit against Horizon to deprive shareholders of the potential for a significant premium being paid to acquire
Depomed in the future.
We are Concerned with
the Board’s Lack of Sufficient Stock Ownership
We believe the Board’s apparent failure to identify and unlock
opportunities to enhance shareholder value is in large part a function of a troubling misalignment of interests between the directors
and Depomed shareholders. According to the Company’s definitive proxy statement for the 2016 Annual Meeting, Depomed
directors collectively own an aggregate of 1,981,791 shares of Common Stock or approximately [3.2]% of the Company’s outstanding
shares, which includes shares underlying certain options and RSUs that were granted to such individuals in their capacities as
directors and/or officers of the Company. Notably, other than CEO Schoeneck’s [2.1]% stake in the Company, not a single director
owns more than 1% of the Company’s outstanding shares. Accordingly, we find there to be a lack of significant shareholder
representation on the Board. We believe the shareholders, as the true owners of the Company, need to have a strong voice
at the Board level. Such a voice promotes greater accountability and creates an environment that forces other directors to
consider new and innovative ways to positively impact shareholder value.
Starboard and its Nominees, on the other hand, own approximately
[9.83]% of the Company’s outstanding shares. It seems apparent to us that with so little “skin in the game”
the Board does not have the same commitment to shareholder value as we do. We believe a culture focused on long-term value
creation and shareholder accountability requires placing shareholder representatives on the Board who have a significant financial
commitment to the Company along with relevant experience. This requirement ensures the proper alignment of interests between
the Board and shareholders.
We Believe There are Opportunities
Available to the Company to Drive Shareholder Value
We believe that Depomed is deeply undervalued
and that significant opportunities exist to create shareholder value based on actions within the control of the Board. In fact,
our analysis indicates that Depomed’s 2016 earnings per share (EPS) could increase by at least 35% based on certain operational
savings, debt paydown and refinance savings that Starboard believes are available to the Company.
Further, based on
recent press reports, it appears that Depomed may have hired bankers to explore a sale of the Company. As we have outlined publicly,
we believe Depomed would be extremely attractive to numerous potential acquirers, and while there exists an opportunity to significantly
improve operations at the Company, an outright sale may be the best option for unlocking shareholder value. However, we remain
extremely concerned that any potential sale process may not be undertaken with genuine intent. We therefore believe it is imperative
that any sale process be squarely focused on maximizing value for all shareholders and that it is necessary for directors proposed
by Starboard to be involved in any sale process at the Board level to ensure that the Board is representing the best interests
of shareholders.
Our Nominees Have the Experience,
Qualifications and Commitment Necessary to Fully Explore Available Opportunities to Unlock Value for Shareholders
For the reasons set forth above, we lack confidence that
the Board, as currently composed, has the objectivity and commitment to take the steps necessary to enhance shareholder value at
the Company or to protect the best interests of Depomed shareholders. We believe the individuals we have selected possess unique
skill sets and perspectives directly relevant to Depomed’s business and current challenges, including pharmaceutical operations,
healthcare regulatory, finance, board governance and oversight, and mergers and acquisitions expertise.
In fact, we undertook an extensive process to carefully vet
a slate of highly-qualified Nominees that included the evaluation of over 100 qualified potential candidates. Following this initial
evaluation, we continued to meet with numerous pharmaceutical executives to supplement our slate with additional pharmaceutical
experience. Unfortunately, given the extensive requirements and restrictions under the Bylaws for calling the Special
Meeting, the addition of any new, highly qualified nominees to our slate would have effectively required us to submit a new record
date request notice to Depomed, thereby restarting the clock under the Bylaws for the Special Meeting and further delaying our
efforts to remove and replace the Board. Accordingly, Starboard appointed two exceptionally qualified former senior
pharmaceutical executives – Robert G. Savage and James L. Tyree – as Advisors to assist in its solicitation efforts
given their significant industry knowledge and experience. If our Special Meeting solicitation ultimately proves successful
and our Nominees are elected to the Board, we would invite Messrs. Savage and Tyree to join the Board, and they have indicated
their desire to do so. We believe our experienced Nominees, together with our highly qualified Advisors, would better serve Depomed
and protect shareholders’ rights.
In addition, in order to maintain a degree of continuity amidst
the required change that we believe is desperately needed at Depomed, in the event that the current Board is removed and our Nominees
are elected at the Special Meeting, our Nominees would be willing to increase the size of the Board up to eleven members (currently
there are six members; adding the Advisors would expand the Board to eight members) and add back up to three incumbent directors. In
this event, our Nominees would endeavor to meet with certain of the incumbent directors following the Special Meeting to determine
which ones have the qualifications, experience and perspectives that will best complement the new Board members. Any decision would
depend upon not only the credentials of such incumbent directors, but also upon such incumbent directors’ willingness to
serve on the Board together with our Nominees.
Given the Board’s history of placing its interests
ahead of those of its shareholders, we urge you to support our efforts to remove and replace the Board.
We believe our Nominees, if elected at the Special Meeting, together with our highly qualified Advisors, are prepared to
serve the shareholders of Depomed and to ensure that the interests of all shareholders are of paramount importance.
Highlights of Starboard’s Nominees’
and Advisors’ Biographies (in alphabetical order)
:
John J. Delucca
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Mr. Delucca was CFO and EVP, Finance & Administration, of Coty, Inc., a fragrance and beauty products company, from 1998-2002. Previously, he was SVP & Treasurer of RJR Nabisco, Inc., a former American conglomerate, selling tobacco and food products, from 1993-1998.
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Mr. Delucca currently serves as President of Atlantic & Gulf, Limited, LLC, an investment and consulting company.
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Mr. Delucca has extensive corporate governance experience serving as a director of numerous companies, including Endo International plc, British Energy, and Enzo Biochem Inc.
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James P. Fogarty
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Mr. Fogarty was CEO of Orchard Brands, a multi-channel marketer of apparel and home products, from 2011 until its sale in 2015. Previously, he was President & CEO of Charming Shoppes, Inc., a former multi-brand, specialty apparel retailer, President & CEO of American Italian Pasta Company, a pasta manufacturing company, and CFO of Levi Strauss & Co., a brand-name apparel company.
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Mr. Fogarty was COO of Lehman Brothers Holdings, a global financial services firm (subsequent to its Chapter 11 bankruptcy filing). He was also a Managing Director of Alvarez & Marsal, an independent global professional services firm.
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Mr. Fogarty currently serves as a director of Darden Restaurants. Previously, he served as a director of Regis Corporation, Orchard Brands, Charming Shoppes, Inc., and The Warnaco Group.
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Peter A. Lankau
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Mr. Lankau served as President, CEO and a director of Endo Pharmaceuticals Inc., the predecessor of Endo International plc, a specialty pharmaceutical company, from 2005-2008. He previously served as Endo’s President and Chief Operating Officer and as SVP, Commercial Business.
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Previously, Mr. Lankau was Executive Chairman at Nautilus Neurosciences, Inc., a private neurology-focused specialty pharmaceutical company, which sold its business assets to Depomed in December 2013.
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Mr. Lankau is currently a principal in Lankau Consulting LLC, which provides advisory and consulting services to pharmaceutical and biotechnology companies, as well as venture capital and private equity firms, which he founded in January 2014.
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Mr. Lankau is currently Chairman of the Board of Directors of Phosphagenics Limited and a director of ANI Pharmaceuticals, Inc.
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Gavin T. Molinelli
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Mr. Molinelli is a Partner of Starboard Value LP, a New York-based investment adviser with a focused and fundamental approach to investing in publicly traded U.S. companies.
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Mr. Molinelli was formerly on the Board of Directors of Wausau Paper Corp. and Actel Corporation.
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Mr. Molinelli has extensive experience in best-in-class corporate governance practices and significantly improving value at underperforming companies.
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Mary K. Pendergast
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Ms. Pendergast served as Deputy Commissioner and Senior Advisor to the Commissioner at the US Food and Drug Administration (“FDA”), a federal agency of the United States Department of Health and Human Services, from 1990-1997, and as Associate Chief Counsel for Enforcement, Office of the General Counsel, at the FDA, from 1979-1990.
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Previously, Ms. Pendergast served as Executive Vice President, Government Affairs for Elan Corporation, plc, formerly a major drugs firm based in Dublin, Ireland, from 1998-2003.
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Ms. Pendergast is President of Pendergast Consulting, a firm that provides legal and regulatory consulting services to pharmaceutical and biotechnology companies and other entities, which Pendergast founded in 2003.
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Ms. Pendergast currently serves as a director for ICON plc and Impax Laboratories.
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Robert G. Savage (Advisor)
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Mr. Savage held several senior positions with Johnson & Johnson, a healthcare company, from 1996-2002, including Worldwide Chairman for the Pharmaceuticals Group, Company Group Chairman responsible for the North America pharmaceuticals business, and President as well as Vice President of Sales & Marketing for Ortho-McNeil Pharmaceuticals, a Johnson & Johnson company.
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Subsequently, Mr. Savage served as Group Vice President and President for the General Therapeutics and Inflammation Business of Pharmacia Corporation, a pharmaceutical and biotechnological company, from 2002 until the completion of its acquisition by Pfizer, Inc. in 2003.
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Mr. Savage has served as President of Strategic Imagery, LLC, a consulting firm he founded, focused on providing in-line and portfolio strategies for major healthcare firms, since 2003.
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Mr. Savage currently serves as a director for The Medicines Company.
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Jeffrey C. Smith
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Mr. Smith is a Managing Member, CEO, and Chief Investment Officer of Starboard Value LP, a New York-based investment adviser with a focused and fundamental approach to investing in publicly traded U.S. companies.
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Mr. Smith currently serves as Chairman of Advance Auto Parts, Inc. and a director of Yahoo! Inc.
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Previously, he has served as a director of Darden Restaurants (Chairman), Office Depot, Inc., Quantum Corporation, Regis Corporation, Surmodics, Inc., Zoran Corporation, Phoenix Technologies Ltd. (Chairman), Actel Corporation, S1 Corporation, Kensey Nash Corporation, and The Fresh Juice Company.
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Mr. Smith has extensive experience in best-in-class corporate governance practices and significantly improving value at underperforming companies.
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James L. Tyree (Advisor)
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Mr. Tyree held numerous executive positions at Abbott Laboratories, a global healthcare company, from 2000 to 2010, including: Corporate Vice President, Pharmaceutical and Nutritional Products Group; Senior Vice President, Global Nutrition, and Executive Vice President, Pharmaceutical Products.
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Mr. Tyree is the co-founder and managing partner of Tyree & D’Angelo Partners (TDP), a private equity investment firm.
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Mr. Tyree currently serves as an independent director of SonarMed, Genelux Corporation, ChemoCentryx, Inc. and Innoviva, Inc.
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Mr. Tyree has extensive experience in pharmaceutical management and mergers and acquisitions, including the acquisitions of BASF Pharmaceuticals, KOS Pharmaceuticals, Solvay Pharmaceuticals and Piramal Health Solutions consummated while at Abbott Laboratories.
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OUR PROPOSALS FOR THE SPECIAL MEETING
Starboard is soliciting your proxy for the Special Meeting
in support of the following Proposals:
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Proposal 1:
“RESOLVED, that each of the six (6) members of the Board who are expected to be serving as directors
as of the date of the Special Meeting, including Peter D. Staple, Karen A. Dawes, Louis J. Lavigne, Jr., Samuel R. Saks, M.D.,
James A. Schoeneck and David B. Zenoff, D.B.A, as well as any person or persons elected or appointed to the Board without shareholder
approval after the date hereof, and up to and including, the date of the Special Meeting, be removed from office as directors of
the Company, each such removal to become effective upon the election of each successor by the shareholders of the Company.”
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Voting Standard
Section 19 of the Bylaws, together with Section 303(a) of
the CGCL, provides that all of the directors may be removed without cause if such removal is approved by the affirmative vote of
a majority of the outstanding shares of Common Stock entitled to vote. As discussed in more detail below, Section 303(a)(1) of
the CGCL provides that a director cannot be removed (unless the entire Board is removed) if the votes cast against removal of the
director would be sufficient to elect the director if voted cumulatively at an election at which the same total number of votes
were cast and the entire number of directors authorized at the time of the director’s most recent election were then being
elected.
Background
Starboard is seeking to remove Peter D. Staple, Karen A.
Dawes, Louis J. Lavigne, Jr., Samuel R. Saks, James A. Schoeneck and David B. Zenoff because, among other things, Starboard believes
these Board members have consistently failed to act in the best interests of shareholders. If Proposal 1 is passed at the Special
Meeting and the entire Board is removed, there will be no directors serving on the Board. Accordingly, Starboard is seeking support
for the election of the Nominees under Proposal 3 below to fill the ensuing Board vacancies at the Special Meeting.
In light of the unusual cumulative voting mechanics that
would be implicated under Section 303(a)(1) of the CGCL and the Bylaws if any director is not removed under Proposal 1,
the
only practical way to effect any Board changes at the Special Meeting is by voting to remove the
entire
Board
.
If
even just one Depomed director were not removed at the Special Meeting, then the director-protecting cumulative voting provision
is triggered with respect to every other director, thereby making the voting threshold required to remove any directors extraordinarily
high and virtually impracticable.
We strongly urge all shareholders to vote FOR the removal
of all six of the incumbent directors at the Special Meeting even if you are not in favor of removing and replacing the entire
Board.
We strongly urge you to vote “
FOR
”
Proposal 1 by signing, dating and returning the enclosed WHITE Proxy Card in the enclosed postage paid envelope. You may also vote
by telephone using the toll-free number on the WHITE Proxy Card or over the Internet using the Internet address on the WHITE Proxy
Card.
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·
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Proposal 2
: “RESOLVED, that, in the event that the Board is fixed at some size other than six (6) members as
of the date of the Special Meeting, Section 16 of the Bylaws be amended to fix the size of the Board at six (6) members.”
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The language of the proposed Bylaw amendment:
Section 16 of the Bylaws is hereby amended and
restated to read as follows:
16. Number. The authorized number of
directors of this corporation shall not be less than five (5) nor more than nine (9). The exact number of directors shall be six
(6). The indefinite number of directors may be changed or a definite number fixed without provision for an indefinite number by
an amendment to the Articles of Incorporation or by amendment to these bylaws duly adopted by the vote or written consent of holders
of a majority of the outstanding shares entitled to vote. An amendment reducing the minimum number of directors to a number less
than five cannot be adopted if the votes cast against its adoption at a meeting of the shareholders, or the shares not consenting
in the case of action by written consent, are equal to more than 16-2/3% of the outstanding shares entitled to vote. No amendment
may change the maximum number of authorized directors to a number greater than two times the minimum number of directors minus
one.
Voting Standard
Section 16 of the Bylaws presently allows a definite number
of Board members within the range of five (5) to nine (9) Board members to be fixed by resolution of the Board or for a definite
number of Board members without provision of an indefinite range to be fixed by an amendment to the Bylaws duly adopted by the
vote or written consent of holders of a majority of the outstanding shares entitled to vote.
Background
Proposal 2 is designed to allow shareholders to fix the size of
the Board at six (6) members so that, in the event Proposal 1 is approved in its entirety, shareholders may elect a full Board
solely consisting of Starboard’s six (6) Nominees.
We strongly urge you to vote “
FOR
” Proposal
2 by signing, dating and returning the enclosed WHITE Proxy Card in the enclosed postage paid envelope. You may also vote by telephone
using the toll-free number on the WHITE Proxy Card or over the Internet using the Internet address on the WHITE Proxy Card.
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Proposal 3:
“RESOLVED, that the following six (6) individuals be and hereby are elected to serve as directors
on the Board, contingent on Proposal 1 being passed: John J. Delucca, James P. Fogarty, Peter A. Lankau, Gavin T. Molinelli, Mary
K. Pendergast, and Jeffrey C. Smith (each, a “Nominee” and, collectively, the “Nominees”).”
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Voting Standard
Section 18 of the Bylaws, together with Section 305(a) of
the CGCL, provide that only shareholders may elect directors to fill any vacancies arising from any removal of directors by approval
of the affirmative vote of a majority of the shares represented and voting at a duly called meeting of shareholders at which a
quorum is present (in which shares voting affirmatively also constitute at least a majority of the required quorum). Consequently,
if Proposal 1 passes, the resulting six (6) vacancies may only be filled by the shareholders. Pursuant to Section 9 of the Bylaws,
a majority of the shares entitled to vote, represented in person or by proxy, shall constitute the required quorum.
Background
The Board is currently comprised of six (6) directors, all
of whom are elected annually. Assuming the entire Board is removed under Proposal 1, we are soliciting your support for the election
of our six (6) highly qualified Nominees at the Special Meeting to fill the ensuing Board vacancies. Our Nominees have unique skill
sets and perspectives directly relevant to Depomed’s business and current challenges, including pharmaceutical operations,
healthcare regulatory, finance, board governance and oversight, and mergers and acquisitions expertise, as exemplified by their
biographies included in the section titled “Information Regarding the Nominees” of this Proxy Statement below. Each
Nominee named in this Proposal 3 has consented to be named in this Proxy Statement and to serve as a director of Depomed, if elected.
The Nominees have not made any commitment to Starboard, if elected, other than that they will serve as directors, exercise
their independent judgment in accordance with their fiduciary duties in all matters before the Board and otherwise discharge their
duties as directors of Depomed consistent with all applicable legal requirements. If elected, each Nominee would serve as a director
until the 2017 Annual Meeting and until his or her successor is duly elected and qualified.
Starboard believes its Nominees are more qualified to serve on the
Board than the current Depomed directors and more dedicated to protecting the interests of Depomed shareholders. We therefore strongly
urge all shareholders to vote for the election of all six of our highly qualified Nominees at the Special Meeting. As discussed
under the “Reasons for the Solicitation” section of this Proxy Statement above, if Starboard’s Nominees are elected
to the Board at the Special Meeting, they would invite Starboard’s exceptionally qualified Advisors to join the Board and
would be willing to to increase the size of the Board to eleven members (currently there are six members; adding the Advisors would
expand the Board to eight members) and add back up to three incumbent directors in order to maintain a degree of continuity amidst
the required change that Starboard believes is required at Depomed.
We do not expect that the Nominees will be unable to stand
for election, but, in the event any Nominee is unable to serve or for good cause will not serve, the shares of Common Stock represented
by the enclosed WHITE proxy card will be voted for substitute nominee(s), to the extent this is not prohibited under the Bylaws
and applicable law. In addition, we reserve the right to nominate substitute person(s) if the Company makes or announces any changes
to its Bylaws or takes or announces any other action that has, or if consummated would have, the effect of disqualifying any Nominee,
to the extent this is not prohibited under the Bylaws and applicable law. In any such case, shares of Common Stock represented
by the enclosed WHITE proxy card will be voted for such substitute nominee(s). We reserve the right to nominate additional person(s),
to the extent this is not prohibited under the Bylaws and applicable law, if the Company increases the size of the Board above
its existing size or increases the number of directors whose terms expire at the Special Meeting. Additional nominations made pursuant
to the preceding sentence are without prejudice to the position of Starboard that any attempt to increase the size of the current
Board or to classify the Board constitutes an unlawful manipulation of the Company’s corporate machinery.
We intend to vote the Starboard Group Shares in favor of
each of the Proposals at the Special Meeting. While we currently intend to vote all of the Starboard Group Shares in favor of the
election of all of the Nominees under Proposal 3, we reserve the right to vote the Starboard Group Shares for the election of less
than all of the Nominees, up to and including the date of the Special Meeting, as we see fit, in order to achieve a Board composition
that we believe is in the best interest of all shareholders. Shareholders should understand, however, that all shares of Common
Stock represented by the enclosed
WHITE
proxy card will be voted at the Special Meeting as marked and, in the absence of
specific instructions, will be voted in accordance with Starboard’s recommendations specified herein and in accordance with
the discretion of the persons named on the
WHITE
proxy card with respect to any other matters that may be voted upon at
the Special l Meeting.
We strongly urge you to vote “
FOR
” Proposal
3 by signing, dating and returning the enclosed WHITE Proxy Card in the enclosed postage paid envelope. You may also vote by telephone
using the toll-free number on the WHITE Proxy Card or over the Internet using the Internet address on the WHITE Proxy Card.
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Proposal 4:
“RESOLVED, that any amendment or provision of the Bylaws adopted and approved by the Board that
changes the Bylaws in any way from the version of the Bylaws adopted and approved by the Board on July 12, 2015 through the date
of the Special Meeting be and hereby is repealed, and that Section 42 of the Bylaws entitled “AMENDMENT OF BYLAWS”
be and hereby is amended to eliminate the power of the Board to adopt, amend or repeal the Bylaws from the date of the Special
Meeting through 120 days following such Special Meeting.”
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The language of the proposed Bylaw amendment:
Section 42 of the Bylaws is hereby amended and
restated to read as follows:
42. Bylaws
may be adopted, amended or repealed by the affirmative vote of a majority of the outstanding shares entitled to vote or by the
Board of Directors, except that (i) any such adoption, amendment or repeal by the Board of Directors shall be effective only
as of the date 121 days after the date hereof and that during such period the power of the Board of Directors to adopt, amend or
repeal the Bylaws shall hereby be eliminated and (ii) an amendment changing the authorized number of directors may only be
adopted as provided in Section 16.
Voting Standard
Section 42 of the Bylaws, together with Section 211 of the
CGCL, provide that approval of Proposal 4 requires the affirmative vote of a majority of the outstanding shares of Common Stock
entitled to vote.
Background
Proposal 4 is designed to prevent the Board from taking any
such further actions to amend the Bylaws to attempt to nullify or delay the actions taken by, or proposed to be taken by, the shareholders
pursuant to the other Proposals or to create new obstacles to the consideration of the Proposals at the Special Meeting.
We strongly urge you to vote “
FOR
” Proposal
4 by signing, dating and returning the enclosed WHITE Proxy Card in the enclosed postage paid envelope. You may also vote by telephone
using the toll-free number on the WHITE Proxy Card or over the Internet using the Internet address on the WHITE Proxy Card.
OTHER AUTHORIZATIONS FOR THE SPECIAL
MEETING
Other Proposals
As of the date hereof, we do not expect any matters other
than the Proposals to be considered and voted upon at the Special Meeting. In the event that Depomed includes any additional proposals
for consideration at the Special Meeting in the notice to Depomed shareholders of such meeting, pursuant to the WHITE Proxy Cards,
we are requesting discretionary authority to oppose and vote against any proposals other than the Proposals that come before the
Special Meeting. Under the Bylaws and the CGCL, absent a waiver of notice or consent to holding the Special Meeting, in each case
from Depomed shareholders not present in person or by proxy at the Special Meeting, only those matters set forth in the notice
to Depomed shareholders of the Special Meeting may be considered and voted upon at such meeting. Under the Bylaws and the CGCL,
Depomed may include its own proposals for consideration at the Special Meeting in such meeting notice.
SPECIAL MEETING VOTING PROCEDURES
Record Date; Vote Per Share
Depomed has one (1) class of voting shares outstanding.
The Record Date has been set for the close of business on September 27, 2016. As of the Record Date, there were [ ] shares of
Common Stock outstanding. Only holders of record on the Record Date are entitled to receive notice of the Special Meeting and
to vote the shares of Common Stock that they held on the Record Date at the Special Meeting. Each share of Common Stock will have
one (1) vote on each matter to be voted on at the Special Meeting. Depomed shareholders will not be entitled to cumulate their
votes in the election of directors, however, as described in more detail above in the section of this Proxy Statement titled “Our
Proposals for the Special Meeting”, cumulative voting may be triggered in the removal of directors under Proposal 1. To
the extent you sell your shares on or prior to the Record Date for the Special Meeting, you will not have the right to vote on
the Proposals at the Special Meeting.
Quorum
A majority of the outstanding shares of Common Stock entitled
to vote at the Special Meeting must be present in person or by proxy in order for there to be a quorum at the Special Meeting.
Shareholders of record who are present at the Special Meeting in person or by proxy and who abstain from voting, including brokers
holding customers’ shares of record who cause abstentions to be recorded at the Special Meeting, will have their shares of
Common Stock included in the number of shares represented at the Special Meeting for purposes of determining whether a quorum is
present. Shares of Common Stock represented by broker non-votes (as described below), if any, will also be included in the number
of shares of Common Stock treated as represented at the Special Meeting for purposes of determining whether a quorum is present.
Broker Non-Votes; Abstentions
If you hold your shares through a bank, broker or other nominee
(that is, in “street name”) and do not provide voting instructions to your bank, broker or other nominee, your shares
will not be voted on any proposal on which your broker does not have discretionary authority to vote. In this case, a “broker
non-vote” occurs.
With respect to the Proposals, abstentions and broker non-votes,
if any, will each have the effect of a vote “
AGAINST
” each such proposal.
Voting Methods
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Voting by Mail
.
A
WHITE
Proxy Card is enclosed for your use. Whether or not you expect to attend
the Special Meeting, please sign, date and mail your
WHITE
Proxy Card promptly
in the enclosed postage paid envelope provided.
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Voting by Telephone
.
If you live in the United States, you may vote your proxy toll-free 24 hours a day, 7
days a week up until 11:59 P.M. Eastern Time on [—], 2016 by calling the toll-free
telephone number on the
WHITE
Proxy Card. Please refer to the voting instructions
on the
WHITE
Proxy Card. If you vote by telephone, please do not return your
WHITE
Proxy Card by mail.
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Voting via
the Internet
. If you wish to vote via the Internet, you may submit your proxy from
any location in the world 24 hours a day, 7 days a week, up until 11:59 P.M. Eastern
Time on [—], 2016 by visiting the website provided on the
WHITE
Proxy Card.
Please refer to the voting instructions on the
WHITE
Proxy Card. If you vote through
the Internet, please do not return your
WHITE
Proxy Card by mail.
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Vote in person by attending the Special Meeting
. Written ballots will be distributed to shareholders who wish to vote
in person at the Special Meeting. If you hold your shares through a bank, broker or other nominee, you must obtain a legal proxy
from such custodian in order to vote in person at the Special Meeting.
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Revocable Proxies
Company shareholders who execute and deliver
WHITE
Proxy Cards solicited on behalf of Starboard in connection with the Proposals at the Special Meeting will be permitted to revoke
such proxies at any time before the proxy is exercised at the Special Meeting by:
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delivering an instrument revoking the earlier proxy card, or a duly executed later-dated proxy card for the same shares, including
a Company-furnished proxy card, to Okapi, our proxy solicitor, at 1212 Avenue of the Americas, 24th Floor, New York, NY 10036;
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filing with the Company’s Corporate Secretary prior to the Special Meeting either a notice of revocation or a duly executed
later dated proxy for the same shares, including a Company-furnished proxy card;
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if you have voted
by telephone or through the Internet, calling the same toll-free number or by accessing
the same web site and following the instructions provided on the
WHITE
Proxy Card;
or
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voting in person at the Special Meeting.
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Please note that if your shares of Common Stock are held
in street name by a broker or other nominee, you must follow the instructions set forth in the instruction cards to revoke your
earlier vote.
We strongly urge you
not
to sign any proxy card
sent to you by Depomed with respect to the Special Meeting. If you have already voted any proxy card that the Company may have
sent you, you can change your vote by signing, dating and returning the WHITE Proxy Card to Okapi at its address set forth below
or by making use of the Internet and telephone voting facilities described above. If you hold your shares through a bank, broker
or other nominee, you will need to contact your bank, broker or nominee and follow their instructions if you want to revoke a proxy
or change your vote. Only your latest signed and dated proxy will count at the Special Meeting.
SOLICITATION OF PROXIES; EXPENSES
The entire expense of preparing and mailing this Proxy Statement
and any other soliciting material and the total expenditures relating to the solicitation of proxies for approval of the Proposals
at the Special Meeting will be borne by Starboard. In addition to the use of the mails, requests may be solicited by Starboard
by mail, courier services, Internet, email, telephone, telegraph, facsimile, advertisements or in person. Banks, brokerage houses,
and other custodians, nominees and fiduciaries will be requested to forward solicitation material to the beneficial owners of Common
Stock that such institutions hold, and Starboard will reimburse such institutions for their reasonable out-of-pocket expenses in
so doing.
Starboard has retained Okapi, a proxy solicitation firm,
to assist in the proxy solicitation in connection with the Special Meeting. Starboard has agreed to pay Okapi customary fees as
may be mutually agreed. In addition, Starboard will reimburse Okapi for its reasonable disbursements. Okapi will be indemnified
against certain liabilities and expenses. That firm will utilize approximately 24 persons in its solicitation efforts.
Starboard estimates that its total expenditures relating
to the solicitation of proxies to call the Special Meeting and the solicitation of proxies for approval of the Proposals at the
Special Meeting will be approximately $[______]. Total expenditures incurred to date relating to these solicitations have been
approximately $[______].
INFORMATION REGARDING THE NOMINEES
In the event that the Company shareholders approve Proposal
1 at the Special Meeting to remove from office, without cause, the following six (6) members of the current Board, constituting
the entire current Board: Peter D. Staple, Vicente Anido, Jr., Karen A. Dawes, Louis J. Lavigne, Jr., Samuel R. Saks, James A.
Schoeneck and David B. Zenoff, as well as any person or persons elected or appointed to the Board without shareholder approval
after the 2016 Annual Meeting, Proposal 2 will fix the size of the Board at six (6) directors and Proposal 3 provides that shareholders
elect the Nominees. Starboard reserves the right to request the appointment or election of substitute persons for any of the Nominees
named herein. The information herein regarding a particular Nominee has been furnished to Starboard by such Nominee.
Name, Address, Age and Employment History
. Set forth
below are the name, age, business address, present principal occupation, and employment and material occupations, positions, offices,
or employments for the past five (5) years of each of the proposed Nominees.
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Name
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Business Address
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Age
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Present Principal Occupation or Employment; Five (5) Year Employment History
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John J. Delucca
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314 Ardmore Road
Ho-Ho-Kus, NJ 07423
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73
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John
J. Delucca is currently the President of Atlantic & Gulf, Limited, L.L.C., an investment and consulting company, a position
he has held since 2004. Previously, Mr. Delucca was Executive Vice President and Chief Financial Officer of the REL Consultancy
Group, a business consulting firm, from 2003 until his retirement in 2004. Prior to that, he served as Chief Financial Officer
and Executive Vice President, Finance & Administration, of Coty, Inc., a fragrance and beauty products company, from 1998
to 2002. From 1993 to 1998, he was Senior Vice President and Treasurer of RJR Nabisco, Inc. During his earlier career, he also
served in executive positions for Hascoe Associates, Inc., The Lexington Group, the Trump Group, International Controls Corp.,
and Textron, Inc. Mr. Delucca has extensive corporate governance experience serving as a member of the Boards of Directors of
numerous companies, including: Endo International plc (NASDAQ: ENDP), a global specialty pharmaceutical company, from 2006 to
June 2015; MergeWorthRx Corp., a then publicly traded special purpose acquisition, from June 2013 to January 2015; Elster Group
SE, a then publicly traded German integrated metering and smart grid technology company, from October 2010 to October 2012; The
Elliot Company, a manufacturer of turbines and generation equipment and wholly owned subsidiary of the public Japanese company
Ebara Corporation, from 1997 to August 2012; ITC Deltacom, a then publicly traded telecommunications company, from 2004 to 2010;
Tier Technologies, Inc., a then publicly traded payment solutions company, from 2007 to 2010; British Energy, a then publicly
traded UK-based electricity generation company, from 2004 to 2009; and Enzo Biochem Inc. (NYSE:ENZ), a leading life sciences biotechnology
company, from 1984 to 2008. Mr. Delucca also previously served as a director of Horizon Natural Resources, Kash n’ Karry,
Nature’s Food Centres, RKO Warner Theaters, Emperor Clock Co., and Edison Controls Corp. He holds a Bachelor of Arts degree
from Bloomfield College and a Masters of Business Administration from Farleigh-Dickinson University School of Graduate Study.
Mr. Delucca’s extensive experience serving as a senior executive and a director of both public and private companies, where
he served as Chairman of numerous Audit Committees, together with his financial expertise well qualifies him for service on the
Board.
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James P. Fogarty
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14 Old Roaring Brook Rd.
Mount Kisco, NY 10549
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47
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James
P. Fogarty is currently a private investor. Previously, he was the Chief Executive Officer and a Director of Orchard Brands, a
multi-channel marketer of apparel and home products, from November 2011 until its sale in July 2015, and was a Senior Advisor
to acquirer Bluestem Group Inc. for a transition period through October 2015. Prior to that, Mr. Fogarty was a private investor
from November 2010 to November 2011. Since October 2014, Mr. Fogarty has served as a member of the Board of Directors of Darden
Restaurants, Inc. (NYSE:DRI), a full service restaurant company, where he serves as Chairman of its Compensation Committee and
as a member of its Finance Committee. From April 2009 until November 2010, Mr. Fogarty was President, Chief Executive Officer
and Director of Charming Shoppes, Inc., a then publicly traded multi-brand, specialty apparel retailer. Other prior executive
positions held by Mr. Fogarty include Managing Director of Alvarez & Marsal, an independent global professional services firm,
from August 1994 until April 2009, President and Chief Operating Officer of Lehman Brothers Holdings (subsequent to its Chapter
11 bankruptcy filing) from September 2008 until April 2009, President and CEO of American Italian Pasta Company, the largest producer
of dry pasta in North America, from September 2005 through February 2008, Chief Financial Officer of Levi Strauss & Co., a
brand-name apparel company, from 2003 until 2005, and from December 2001 through September 2003, he served as Senior Vice President
and Chief Financial Officer and for a period as a Director of The Warnaco Group, a then global apparel maker. From October 2011
through October 2015, Mr. Fogarty served as a director of Regis Corporation (NYSE:RGS), which owns, operates and franchises hair
and retail products. Mr. Fogarty holds a Bachelor’s degree in Economics and Computer Science from Williams College and an
MBA in Finance and Accounting from the Leonard Stern School of Business at New York University. Mr. Fogarty’s extensive
operational experience and turnaround experience, coupled with his significant public board and managerial experience make him
an excellent candidate for the Board. Mr. Fogarty’s extensive operational experience and turnaround experience, coupled
with his significant public board and managerial experience would make him an excellent candidate for the Board.
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Peter A. Lankau
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P.O. Box 827
Gwynedd Valley, PA 19437
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63
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Peter A. Lankau is currently a principal in the consulting firm, Lankau Consulting LLC, which provides advisory and consulting services to support boards of directors and senior management of pharmaceutical and biotechnology companies, as well as venture capital and private equity firms, which he founded in January 2014. Mr. Lankau has served as Chairman of the Board of Directors of Phosphagenics Limited (ASX: POH), an Australian research-based biotechnology company, since May 2015 and as a Director since April 2015. He has also served as a member of the Board of Directors of ANI Pharmaceuticals, Inc. (NASDAQ: ANIP), an integrated specialty pharmaceutical company developing, manufacturing, and marketing branded and generic prescription pharmaceuticals, since October 2015. Previously, Mr. Lankau was Executive Chairman at Nautilus Neurosciences, Inc., a private neurology-focused specialty pharmaceutical company, from October 2011 to January 2014, which sold its business assets to Depomed in December 2013. From April 2009 to February 2011, he was Chief Executive Officer and from February 2011 to December 2012, Chairman, of Logical Therapeutics, Inc., a privately held, clinical stage biopharmaceutical company which developed therapeutic agents to treat medical conditions caused by inflammatory diseases. From 2005 to 2008, Mr. Lankau was President, Chief Executive Officer and a member of the Board of Directors of Endo Pharmaceuticals Inc., the predecessor of Endo International plc (NASDAQ: ENDP), a specialty pharmaceutical company (“Endo”). He also previously served as Endo’s President and Chief Operating Officer and as Senior Vice President, Commercial Business. Prior to Endo, Mr. Lankau was Vice President, Sales and Marketing for Alpharma, Inc. He began his pharmaceutical career with Rhone-Poulenc Rorer, Inc. (now Sanofi) in multiple commercial roles, and was most recently Vice President, Sales-US Pharmaceuticals. Mr. Lankau also currently serves on the Board of Advisors of Orchard Venture Partners, a life sciences venture capital firm, a position he has held since January 2013. He received his Bachelor of Science degree from the University of Albany. Mr. Lankau’s extensive experience as a bio-pharmaceutical executive with over 30 years of management experience in developing and commercializing pharmaceutical products together with his corporate governance experience as a director of both public and private pharmaceutical companies would make him a valuable addition to the Board.
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Gavin T. Molinelli
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c/o Starboard Value LP
777 Third Avenue
18
th
Floor
New York, NY 10017
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32
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Gavin
T. Molinelli is a Partner of Starboard Value LP, a New York-based investment adviser with a focused and fundamental approach to
investing in publicly traded U.S. companies. Prior to that, Mr. Molinelli was a Director and Investment Analyst
for the Ramius Value & Opportunity Fund. Prior to joining Ramius in October 2006, Mr. Molinelli was a member of the Technology
Investment Banking group at Banc of America Securities LLC. Mr. Molinelli previously served on the Board of Directors of Wausau
Paper Corp., a then leading provider of away from home towel and tissue products, from July 2014 until it was acquired by SCA
Tissue North America LLC in January 2016. Mr. Molinelli was also formerly on the Board of Directors of Actel Corp, a semi-conductor
company. Mr. Molinelli received a B.A. in Economics from Washington and Lee University. Mr. Molinelli’s public company board
experience and financial expertise together with his experience serving in various managerial roles would make him a valuable
addition to the Board
.
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Mary K. Pendergast
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4328 Yuma Street, NW
Washington, DC 20016
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65
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Mary K. Pendergast, J.D., LL.M. is currently the President of Pendergast Consulting, a legal and regulatory consulting firm to pharmaceutical and biotechnology companies, which she founded in June 2003. Ms. Pendergast has also served as a member of the Boards of Directors of Impax Laboratories, Inc. (NASDAQ: IPXL), a specialty pharmaceutical company, since July 2013 and ICON plc (NASDAQ: ICLR), a provider of outsourced development services to pharmaceutical, biotechnology and medical device industries, since February 2014. Previously, Ms. Pendergast served as Executive Vice President, Government Affairs, at Elan Corporation, plc, a then publicly traded major drugs firm based in Dublin, Ireland, from January 1998 to June 2003. Prior to that, Ms. Pendergast served as Deputy Commissioner and Senior Advisor to the Commissioner at the US Food and Drug Administration (“FDA”), from November 1990 to December 1997, and as Associate Chief Counsel for Enforcement, Office of the General Counsel, at the FDA, from July 1979 to November 1990. She was also an attorney at the Office of the General Counsel, Department of Health and Human Services, from July 1977 to June 1979. Ms. Pendergast also previously served on the Board of Directors of ARCA biopharma, Inc. (NASDAQ: ABIO), a biopharmaceutical company developing genetically-targeted therapies for cardiovascular diseases, from 2002 until May 2011. Ms. Pendergast received a B.A. degree from Northwestern University, a J.D. degree from the University of Iowa College of Law, and an LL.M. degree from Yale Law School. Ms. Pendergast’s extensive experience in the pharmaceutical and biotechnology industries serving as an executive and board member, including her service at the FDA, would make her a valuable addition to the Board.
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Jeffrey C. Smith
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c/o Starboard Value LP
777 Third Avenue
18
th
Floor
New York, NY 10017
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43
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Jeffrey C. Smith is a Managing Member, Chief Executive Officer and Chief Investment Officer of Starboard Value LP, a New York-based investment adviser with a focused and fundamental approach to investing in publicly traded U.S. companies, which he co-founded in March 2011, after having launched the Starboard Value investment strategy in 2002. Previously, Mr. Smith was a Partner and Managing Director of Ramius LLC, a subsidiary of the Cowen Group, Inc. (“Cowen”). Mr. Smith is a former member of Cowen’s Operating Committee and Cowen’s Investment Committee. Prior to joining Ramius LLC in January 1998, he served as Vice President of Strategic Development and a member of the Board of Directors of The Fresh Juice Company, Inc. Mr. Smith began his career in the Mergers and Acquisitions department at Société Générale. Mr. Smith currently serves on the Board of Directors of Advance Auto Parts, Inc. (NYSE: AAP), a leading automotive aftermarket parts provider in North America, a position he has held since November 2015. He also currently serves on the Board of Directors of Yahoo! Inc. (NASDAQ: YHOO), a multinational technology company, a position he has held since April 2016. Previously, he served as Chairman of the Board of Directors of Darden Restaurants, Inc. (NYSE: DRI), a full service restaurant chain, from October 2014 to April 2016. Mr. Smith also previously served as a member of the Board of Directors of each of Quantum Corporation (NYSE: QTM), a global expert in data protection and big data management, from May 2013 to May 2015, Office Depot, Inc. (NYSE: ODP), an office supply company, from August 2013 to September 2014, Regis Corporation (NASDAQ: RGS), a global leader in beauty salons, hair restoration centers and cosmetology education, from October 2011 until October 2013, Surmodics, Inc. (NASDAQ: SRDX), a leading provider of drug delivery and surface modification technologies to the healthcare industry, from January 2011 to August 2012, and Zoran Corporation, a leading provider of digital solutions in the digital entertainment and digital imaging market, from March 2011 until its merger with CSR plc in August 2011. Mr. Smith was the Chairman of the Board of Directors of Phoenix Technologies Ltd., a provider of core systems software products, services, and embedded technologies, from November 2009 until the sale of the company to Marlin Equity Partners in November 2010. In addition, Mr. Smith previously served as a member of the Board of Directors of each of Actel Corporation, a provider of power management solutions, from March 2009 until its sale to Microsemi Corporation (NASDAQ: MSCC) in October 2010, S1 Corporation, a provider of customer interaction software for financial and payment services, from May 2006 to September 2008, Kensey Nash Corporation, a leading medical technology company, from December 2007 to February 2009, and The Fresh Juice Company, Inc. (FRSH) from 1996 until its sale to the Saratoga Beverage Group (TOGA) in 1998. Mr. Smith graduated from The Wharton School of Business at The University of Pennsylvania, where he received a B.S. in Economics. Mr. Smith’s extensive public board experience and experience in a variety of industries together with his management experience in a variety of roles would enable him to provide invaluable oversight to the Board.
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Additional Information about the Nominees
. Each Nominee
named in this Proxy Statement is independent under the Board’s independence guidelines, the applicable rules of Nasdaq, and
the independence standards applicable to the Company under paragraph (a)(1) of Item 407 of Regulation S-K under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”).
Each Nominee who will serve on the audit committee of the
Board meets the financial literacy requirements under the applicable rules of Nasdaq, and each will qualify as an “audit
committee financial expert” under the applicable rules of Nasdaq.
Each Nominee named herein has consented to be named in any
proxy or solicitation statement and proxy cards to be filed with the SEC and distributed to shareholders of Depomed by Starboard
and to serve as a director of the Company, if elected. If these Nominees are elected, they intend to discharge their duties as
directors of the Company consistent with all applicable legal requirements, including the fiduciary obligations imposed upon corporate
directors under the CGCL. If elected, each of the Nominees would serve as a director until the 2017 Annual Meeting or an intervening
special meeting of shareholders at which directors are elected and a successor has been duly elected.
If elected, the Nominees will be entitled to such compensation
from the Company as may be determined by the Company for non-employee directors, and which is described in the Company’s
Definitive Proxy Statement for the 2016 Annual Meeting, as filed with the SEC on April 14, 2016.
Each of the Nominees’ ownership of securities of the
Company is set forth below in the section titled “Certain Information Regarding the Participants.” All of the Nominees
are citizens of the United States.
Starboard V&O Fund has signed letter agreements, pursuant
to which it and its affiliates have agreed to indemnify each of Messrs. Fogarty, Delucca, and Lankau, as well as Ms. Pendergast,
against claims arising from the solicitation of proxies from the Company shareholders in connection with the Special Meeting and
any related transactions.
Starboard V&O Fund has signed compensation letter agreements
with each of Messrs. Fogarty, Delucca, and Lankau, as well as Ms. Pendergast, pursuant to which Starboard V&O Fund has agreed
to pay each of them (i) $15,000 in cash upon Starboard V&O Fund submitting the Record Date Request Notice (other than Mr. Fogarty
who previously received the $15,000 in cash upon delivery of the Initial Record Date Request Notice) and (ii) $15,000 in cash upon
the filing by Starboard V&O Fund of a definitive proxy statement with the SEC relating to a solicitation of proxies in favor
of each of their election as a director of the Company at the Special Meeting. Pursuant to the compensation letter agreements,
each of Messrs. Fogarty, Delucca, and Lankau, as well as Ms. Pendergast, has agreed to use the after-tax proceeds from such compensation
to acquire securities of the Company (the “Nominee Shares”) at such time that each of Messrs. Fogarty, Delucca, and
Lankau, as well as Ms. Pendergast, shall determine, but in any event no later than fourteen (14) days after receipt of such compensation,
subject to certain limitations. If elected or appointed to serve as a director of the Board, each of Messrs. Fogarty, Delucca,
and Lankau, as well as Ms. Pendergast, agrees not to sell, transfer or otherwise dispose of any Nominee Shares within two (2) years
of his or her election or appointment as a director; provided, however, in the event that the Company enters into a business combination
with a third party, each of Messrs. Fogarty, Delucca, and Lankau, as well as Ms. Pendergast, may sell, transfer or exchange the
Nominee Shares in accordance with the terms of such business combination.
On May 26, 2016, the Nominees and Starboard entered into
an Amended and Restated Joint Filing and Solicitation Agreement in which, among other things, (a) they agreed to the joint filing
on behalf of each of them of statements on Schedule 13D with respect to the securities of the Company, (b) they agreed to form
a group for the purpose of (i) submitting the Record Date Request Notice, (ii) soliciting written requests from the holders of
10% or more of the outstanding shares of Common Stock to call the Special Meeting, and (iii) soliciting proxies at any such Special
Meeting for the purpose of approving the Proposals set forth herein, and (c) Starboard V&O Fund and certain of its affiliates
agreed to bear all expenses incurred in connection with the solicitation, including approved expenses incurred by any of the parties
in connection with the solicitation, subject to certain limitations. The Advisors entered into a Joinder Agreement to the foregoing
Amended and Restated Joint Filing and Solicitation Agreement, pursuant to which they agreed to be bound by the terms and conditions
set forth therein, including, among other things, the joint filing on behalf of each of them of statements on Schedule 13D, and
any amendments thereto, with respect to the securities of the Company.
No Nominee or any associate of a Nominee is a party adverse
to the Company or any of its subsidiaries or has a material interest adverse to the Company or any of its subsidiaries in any material
proceeding, and there is no event that occurred during the past ten (10) years with respect to any of the Nominees that is required
to be described under 401(d) or 401(f) of Regulation S-K.
Filling of Vacancies
. Section 18, together with Section
305(a) of the CGCL, provides that only shareholders may elect directors to fill any vacancies arising from any removal of directors
by approval of the affirmative vote of a majority of the shares represented and voting at a duly meeting of shareholders at which
a quorum is present (which shares voting affirmatively also constitute at least a majority of the required quorum). Additionally,
Section 18, together with Section 305(b) of the CGCL, provide that shareholders may elect a director at any time to fill any vacancy
not filled by the directors of the Company.
CERTAIN INFORMATION REGARDING THE
PARTICIPANTS
Starboard Value LP and Starboard V&O Fund are participants
in this solicitation of proxies, in addition to Starboard S LLC, Starboard C LP, Starboard Value GP, Principal Co, Principal GP,
Starboard R LP, Starboard R GP, Mark R. Mitchell, Peter A. Feld, the Nominees and the Advisors.
The principal business of Starboard V&O Fund is serving
as a private investment fund. Starboard V&O Fund has been formed for the purpose of making equity investments and, on occasion,
taking an active role in the management of portfolio companies in order to enhance shareholder value. Starboard S LLC and Starboard
C LP have been formed for the purpose of investing in securities and engaging in all related activities and transactions. Starboard
Value LP provides investment advisory and management services and acts as the investment manager of Starboard V&O Fund, Starboard
C LP and a certain managed account (the “Starboard Value LP Account”) and the manager of Starboard S LLC. The principal
business of Starboard Value GP is providing a full range of investment advisory, pension advisory and management services and
serving as the general partner of Starboard Value LP. The principal business of Principal Co is providing investment advisory
and management services. Principal Co is a member of Starboard Value GP. Principal GP serves as the general partner of Principal
Co. Starboard R LP serves as the general partner of Starboard C LP. Starboard R GP serves as the general partner of Starboard
R LP. Messrs. Smith, Mitchell and Feld serve as members of Principal GP and the members of each of the Management Committee of
Starboard Value GP and the Management Committee of Principal GP. Mr. Molinelli’s principal occupation is serving as Managing
Director of Starboard Value LP. Mr. Delucca is the President of Atlantic & Gulf, Limited, L.L.C., an investment and consulting
company. Mr. Fogarty is currently a private investor. Mr. Lankau is a principal in the consulting firm, Lankau Consulting LLC,
which provides advisory and consulting services to support boards of directors and senior management of pharmaceutical and biotechnology
companies, as well as venture capital and private equity firms. Ms. Pendergast is President of Pendergast Consulting, a legal
and regulatory consulting firm to pharmaceutical and biotechnology companies. Mr. Savage is the President of Strategic Imagery,
LLC,
a consulting firm he founded focused on providing in-line and portfolio strategies for
major healthcare firms. Mr. Tyree is the Managing Partner of Tyree & D’Angelo Partners LLC,
a private equity investment firm.
The address of the principal office of each of Starboard
S LLC, Starboard C LP, Starboard R LP, Starboard R GP, Starboard Value LP, Starboard Value GP, Principal Co, Principal GP, and
Messrs. Smith, Mitchell, Molinelli, and Feld is 777 Third Avenue, 18th Floor, New York, New York 10017. The address
of the principal office of Starboard V&O Fund is 89 Nexus Way, Camana Bay, PO Box 31106, Grand Cayman KY1-1205, Cayman Islands. The
principal business address of each of the other Nominees is set forth above.
The principal
business address of Mr. Savage is 2604 North Greenway Drive, Coral Gables, Florida 33134. The principal business address
of Mr. Tyree is 233 N. Michigan Ave., Suite 2420, Chicago, Illinois 60601.
As of the date hereof, Starboard V&O Fund directly owns
4,636,387 shares of Common Stock. As of the date hereof, Starboard S LLC directly owns 548,714 shares of Common Stock. As of the
date hereof, Starboard C LP directly owns 304,821 shares of Common Stock. Starboard R LP, as the general partner of Starboard
C LP, may be deemed the beneficial owner of the 304,821 shares of Common Stock directly owned by Starboard C LP. Starboard R GP,
as the general partner of Starboard R LP, may be deemed the beneficial owner of the 304,821 shares of Common Stock directly owned
by Starboard C LP. As of the date hereof, 525,078 shares of Common Stock were held in the Starboard Value LP Account. Starboard
Value LP, as the investment manager of each of Starboard V&O Fund, Starboard C LP and the Starboard Value LP Account and the
manager of Starboard S LLC, may be deemed the beneficial owner of an aggregate of 6,015,000 shares of Common Stock directly owned
by Starboard V&O Fund, Starboard S LLC and Starboard C LP and held in the Starboard Value LP Account. Each of Starboard Value
GP, as the general partner of Starboard Value LP, Principal Co, as a member of Starboard Value GP, Principal GP, as the general
partner of Principal Co and each of Messrs. Smith, Mitchell and Feld, as a member of Principal GP and as a member of each of the
Management Committee of Starboard Value GP and the Management Committee of Principal GP, may be deemed the beneficial owner of
the 6,015,000 shares of Common Stock directly owned by Starboard V&O Fund, Starboard S LLC and Starboard C LP and held in
the Starboard Value LP Account. As of the date hereof, Mr. Fogarty directly owns 16,450 shares of Common Stock. As of the date
hereof, none of Messrs. Molinelli, Delucca, or Lankau, nor Ms. Pendergast, directly or indirectly, own any securities of the Company.
As of the date hereof, none of the Advisors, directly or indirectly, own any securities of the Company.
Each participant in this solicitation, as a member of a “group”
with the other participants for the purposes of Section 13(d)(3) of the Exchange Act, may be deemed to beneficially own the 6,031,450
shares of Common Stock owned in the aggregate by all of the participants in this solicitation. Each participant in this solicitation
disclaims beneficial ownership of the shares of Common Stock he, she or it does not directly own. For information regarding purchases
and sales of securities of the Company during the past two years by the participants in this solicitation, see
Schedule I
.
Starboard Value LP entered into advisor agreements (the “Advisor
Agreements”) with each of the Advisors, pursuant to which it agreed to pay each of the Advisors (i) an upfront fee equal
to $15,000 in cash within fifteen (15) business days of the date of the Advisor Agreement and (ii) $15,000 in cash upon the filing
by Starboard Value LP of a definitive proxy statement with the SEC relating to a solicitation of proxies in favor of the election
of the Nominees to the Board at the Special Meeting. Each of the Advisors agreed to use the after-tax proceeds from
such compensation, or an equivalent amount of other funds, to acquire securities of the Company, no later than ten (10) business
days after receipt of such compensation, except in certain limited circumstances.
Except as set forth in the Proxy Statement (including the
Exhibits and Annexes), no participant in this solicitation or any of his or its associates has a substantial interest, direct or
indirect, by securities holdings or otherwise in any matter to be acted on at the Special Meeting.
Except as set forth in the Proxy Statement (including the
Exhibits and Annexes), (ii) during the past 10 years, no participant in this solicitation has been convicted in a criminal proceeding
(excluding traffic violations or similar misdemeanors); (ii) no participant in this solicitation directly or indirectly beneficially
owns any securities of the Company; (iii) no participant in this solicitation owns any securities of the Company which are owned
of record but not beneficially; (iv) no participant in this solicitation has purchased or sold any securities of the Company during
the past two years; (v) no part of the purchase price or market value of the securities of the Company owned by any participant
in this solicitation is represented by funds borrowed or otherwise obtained for the purpose of acquiring or holding such securities;
(vi) no participant in this solicitation is, or within the past year was, a party to any contract, arrangements or understandings
with any person with respect to any securities of the Company, including, but not limited to, joint ventures, loan or option arrangements,
puts or calls, guarantees against loss or guarantees of profit, division of losses or profits, or the giving or withholding of
proxies; (vii) no associate of any participant in this solicitation owns beneficially, directly or indirectly, any securities of
the Company; (viii) no participant in this solicitation owns beneficially, directly or indirectly, any securities of any parent
or subsidiary of the Company; (ix) no participant in this solicitation or any of his, her or its associates was a party to any
transaction, or series of similar transactions, since the beginning of the Company’s last fiscal year, or is a party to any
currently proposed transaction, or series of similar transactions, to which the Company or any of its subsidiaries was or is to
be a party, in which the amount involved exceeds $120,000; (x) no participant in this solicitation or any of his, her or its associates
has any arrangement or understanding with any person with respect to any future employment by the Company or its affiliates, or
with respect to any future transactions to which the Company or any of its affiliates will or may be a party; (xi) no participant
in this solicitation has a substantial interest, direct or indirect, by securities holdings or otherwise in any matter to be acted
on at the Special Meeting; (xii) no participant in this solicitation holds any positions or offices with the Company; (xiii) no
participant in this solicitation has a family relationship with any director, executive officer, or person nominated or chosen
by the Company to become a director or executive officer; and (xiv) no corporations or organizations, with which any participant
in this solicitation has been employed in the past five years, is a parent, subsidiary or other affiliate of the Company. Except
as set forth in the Proxy Statement (including the Exhibits and Annexes), there are no material proceedings to which any participant
in this solicitation or any of his, her or its associates is a party adverse to the Company or any of its subsidiaries or has a
material interest adverse to the Company or any of its subsidiaries.
CERTAIN EFFECTS RELATED TO THIS
SOLICITATION
2021 Notes
Based on a review of the Company’s public filings with
the SEC, pursuant to the First Supplemental Indenture, dated as of September 9, 2014 (the “Supplemental Indenture”),
to the Indenture, dated as of September 9, 2014, between the Company and The Bank of New York Mellon Trust Company, N.A. (the “Indenture”),
regarding certain 2.50% Convertible Senior Notes due 2021 (the “2021 Notes”), the Proposals, if passed, are not likely
to result in any payments in connection with a “Fundamental Change” (i.e., change of control) (as defined in the Supplemental
Indenture), which definition includes the consummation of (i) any recapitalization, reclassification or change of the Common Stock
(other than changes resulting from a subdivision or combination) as a result of which the Common Stock would be converted into,
or exchanged for, stock, other securities, other property or assets; (ii) any share exchange, consolidation or merger of the Company
pursuant to which the Common Stock would be converted into cash, securities or other property or assets; or (iii) any sale, lease
or other transfer in one transaction or a series of transactions of all or substantially all of the consolidated assets of the
Company and its subsidiaries, taken as a whole, to any person other than one of the Company’s subsidiaries; provided, however,
that a transaction described in clause (ii) in which all persons in whose names’ at the time each particular 2021 Note is
registered in the Company’s note register of all classes of the Company’s Common Equity (as defined in the Supplemental
Indenture) immediately prior to such transaction own, directly or indirectly, more than 50% of all classes of common equity of
the continuing or surviving corporation or transferee or the parent thereof immediately after such transaction in substantially
the same proportions as such ownership immediately prior to such transaction shall not be a Fundamental Change. However, any of
the transactions listed in clauses (i) through (iii) of the foregoing sentence will not constitute a Fundamental Change if at least
90% of the consideration received or to be received by holders of Common Stock, excluding cash payments for fractional shares,
in connection with such transaction or transactions consists of shares of publicly listed common stock and as a result of such
transactions the 2021 Notes become convertible into such consideration, excluding cash payments for fractional shares. The Proposals,
if passed, would not otherwise trigger a Fundamental Change under the 2021 Notes.
Senior Secured Notes
Further based on a review of the Company’s public filings
with the SEC, pursuant to the Note Purchase Agreement, dated as of March 12, 2015, by and between the Company, the purchasers party
thereto from time to time (“Purchasers”), and Deerfield Private Design Fund III, L.P. (the “Note Purchase Agreement”),
pursuant to which the Company requested that the Purchasers purchase an aggregate principal amount of $575,000,000 of the Company’s
senior secured notes (the “Senior Secured Notes”), the Proposals are not likely to result in any prepayment obligations
and penalty prepayment premiums in connection with a “Major Transaction” under the Note Purchase Agreement. We cannot
confirm whether this would be the case as of the date hereof as operative provisions of the Note Purchase Agreement as publicly
disclosed have received confidential treatment. As publicly disclosed, a Major Transaction includes a consolidation, merger, exchange
of shares, recapitalization, reorganization, business combination or any other event following which the holders of Common Stock
immediately preceding such consolidation, merger, exchange, recapitalization, reorganization, combination or event either (i) no
longer hold a majority of the shares of Common Stock or (ii) no longer have the ability to elect a majority of the Board.
2014 Omnibus Incentive Plan
Further based on a review of the Company’s public filings
with the SEC, pursuant to the 2014 Omnibus Incentive Plan, effective as of February 19, 2014, Proposal 1 if passed without election
of any Nominee pursuant to Proposal 3 or Proposal 1 if passed together with the election of any Nominee pursuant to Proposal 3
could each potentially result in a “Change in Control.” A Change in Control means any event so determined by the Board
and that also constitutes a “change in the ownership or effective control” of the Company or change in “ownership
of a substantial portion of the assets” of the Company within the meaning of Internal Revenue Code Section 409A(a)(2)(A)(v)
(provided, that the Board may specify a definition of Change in Control in an award agreement that is not inconsistent with this
definition of Change in Control), and, accordingly, the Board may so determine that Proposal 1 if passed without election of any
Nominee pursuant to Proposal 3 or Proposal 1 if passed together with the election of any Nominee pursuant to Proposal 3 qualifies.
In the event of a Change in Control, the Compensation Committee of the Board can accelerate the vesting or exercisability of an
award, eliminate or make less restrictive any restrictions in an award, waive any restriction or other provision of the plan or
an award or otherwise amend or modify an award in any manner that is, in either case, (i) not materially adverse to the participant
to whom such award was granted, (ii) consented to by such participant or (iii) authorized by section 15(c) of the plan; provided,
however, that subject to certain exceptions, no such action shall permit the term of any option or stock appreciation right to
be greater than ten (10) years from its grant date.
2004 Equity Incentive Plan
Further based on a review of the Company’s public filings
with the SEC, pursuant to the Company’s 2004 Equity Incentive Plan, as amended on December 20, 2011, Proposal 1 if passed
without election of any Nominee pursuant to Proposal 3 or Proposal 1 if passed together with the election of any Nominee pursuant
to Proposal 3 could each potentially result in a “Change in Control” within the meaning of the 2004 Equity Incentive
Plan.
Examples of transactions or events that the Board may treat
as Changes in Control are: (i) any person or entity, including a “group” as contemplated by Section 13(d)(3) of the
Exchange Act, acquires securities holding 50% or more of the total combined voting power or value of the Company, or (ii) as a
result of or in connection with a contested election of Company directors, the persons who were Company directors immediately before
the election cease to constitute a majority of the Board. Accordingly, the Board could potentially provide that the passage of
Proposal 1 without election of any Nominee pursuant to Proposal 3 or Proposal 1 if passed together with the election of any Nominee
pursuant to Proposal 3 constitute a Change in Control.
In connection with a Change in Control, notwithstanding any
other provision of the plan, the Board may, but need not, take any one or more of the following actions. The Board may, in its
sole discretion, provide that the vesting of any or all award shares subject to vesting or a right of repurchase shall accelerate
or lapse, as the case may be. If the Board exercises such discretion with respect to options, such options shall become exercisable
in full prior to the consummation of such event at such time and on such conditions as the Board determines, and if such options
are not exercised prior to the consummation of the event, they shall terminate at such time as determined by the Board. The Board
need not have adopted the same rules for each award or each awardee. Subject to any greater rights granted to participants as described
under the foregoing provisions, any outstanding awards shall be treated as provided in any applicable agreement or plan of merger,
consolidation, dissolution, liquidation, or sale of assets, as the case may be. In addition, the Board may extend the date for
the exercise of awards (but not beyond their original expiration date). The Board need not adopt the same rules for each award
or each awardee.
Different rules apply under the 2004 Equity Incentive Plan
in respect of individuals who are non-employee directors. In the event of a Change in Control while the awardee remains a non-employee
director, the shares at the time subject to each outstanding option held by such awardee pursuant to the plan, but not otherwise
vested, shall automatically vest in full so that each such option shall, immediately prior to the effective date of the Change
in Control, become exercisable for all the shares as fully vested shares and may be exercised for any or all of those vested shares.
Each such option shall remain exercisable for such fully vested Shares until the expiration or sooner termination of the option
term in connection with a Change in Control.
Employee Stock Purchase Plan
Further based on a review of the Company’s public filings
with the SEC, pursuant to the 2004 Employee Stock Purchase Plan, as amended on February 19, 2014, the Proposals are not likely
to result in the immediate termination of the “Offering Period” thereunder. Each Offering Period consists of four (4)
six (6)-month purchase periods during which payroll deductions of the participants are accumulated under the plan. In the event
of, among other things, a merger in which the Company is the surviving corporation but after which the shareholders of the Company
immediately prior to such merger (other than any shareholder that merges, or which owns or controls another corporation that merges,
with the Company in such merger) cease to own their shares or other equity interest in the Company, each purchase right under the
plan shall be assumed or an equivalent purchase right shall be substituted by the successor corporation or a parent or subsidiary
of the successor corporation, unless the successor corporation does not agree to assume the option or to substitute an equivalent
purchase right, in which case the Board may determine, in the exercise of its sole discretion and in lieu of such assumption or
substitution, to shorten the Offering Period then in progress by setting a new purchase date.
Management Continuity Agreements
Further based on a review of the Company’s public filings
with the SEC, Proposal 1 if passed without election of any Nominee pursuant to Proposal 3 or Proposal 1 if passed together with
the election of any Nominee pursuant to Proposal 3 could each potentially trigger change in control payments under the May 2014
form of Management Continuity Agreement entered into with executive officers of the Company.
The Management Continuity Agreement provides, among other
things, that in the event an executive officer is subject to an involuntary termination (a termination by the Company without “Cause”
or by the executive for “Good Reason,” as those terms are defined in the Management Continuity Agreements) within ninety
(90) days before or twenty-four (24) months following a “change in control”, the executive officer is entitled to receive:
(i) 100% vesting acceleration of such officer’s unvested Company equity awards; (ii) subject to execution of a release of
claims, severance payments for a period of twelve (12) months (if the officer is the chief executive officer) or twenty-four (24)
months (if the officer is not the chief executive officer) equal to the base salary which the officer was receiving immediately
prior to the change in control (or immediately prior to the termination, if greater); (iii) a lump sum payment equal to two (2)
times (if such officer is the chief executive officer) or equal to (if the officer is not the chief executive officer) such officer’s
annual bonus target for the Company’s fiscal year in which the termination occurs; and (iv) payment by the Company of the
full cost of the health insurance benefits provided to such officers immediately prior to the change in control through the earlier
of the end of the severance period or until such officer is no longer eligible for such benefits under applicable law. If the foregoing
payments and benefits are subject to the “golden parachute” excise tax under the Internal Revenue Code, they will be
reduced if and to the extent doing so would cause the executive to retain a greater amount on an after-tax basis.
Filed Agreements
We have not independently verified if the copies of the agreements
discussed above in this section of the Proxy Statement titled “Certain Effects Related to This Solicitation” (collectively,
the “Filed Agreements”) and publicly filed by the Company with the SEC are the same as the executed copies of the Filed
Agreements, and the analyses above are based on our review of the Company’s public SEC filings. While we are not aware of
any, there may be other agreements that may be triggered by a change in control in connection the Proposals. The discussion of
the potential impact of the Proposals is based entirely upon our review of the Filed Agreements and the Company’s Annual
Report on Form 10-K for the year ended December 31, 2015.
OTHER MATTERS
The principal executive offices of the Company are located
at 7999 Gateway Boulevard, Suite 300, Newark, California 94560. Except as otherwise noted herein, the information concerning the
Company has been taken from or is based upon documents and records on file with the SEC and other publicly available information.
Although Starboard does not have any knowledge that would indicate that any statement contained herein that is based upon such
documents and records is untrue, it does not take any responsibility for the accuracy or completeness of the information contained
in such documents and records, or for any failure by the Company to disclose events that may affect the significance or accuracy
of such information. For information regarding the security ownership of certain beneficial owners and management of the Company,
see Schedule II.