BlueMountain Capital Management, LLC Urges Minority Shareholders to Vote For BlueMountain's Independent External Nominees to the Board of Taro Pharmaceutical Industries Ltd. and Against the Re-Election of Incumbent External Directors and All Interested-Party Proposals Involving Executive and Director Compensation PR Newswire NEW YORK, Aug. 26, 2013 NEW YORK, Aug. 26, 2013 /PRNewswire/ --BlueMountain Capital Management, LLC, on behalf of various funds it manages (collectively "BlueMountain") has nominated two highly qualified, independent individuals to serve as External Directors of Taro Pharmaceutical Industries Ltd. ("Taro" or the "Company"). As External Directors serve three year terms the upcoming election represents a unique opportunity for minority shareholders to dramatically improve the governance of the Company and to help ensure that it is managed in the best interests of all shareholders. This opportunity will not recur for another three years. All minority shareholders need to make their voice heard now. BlueMountain urges shareholders to vote FOR our External Director nominees (Proposal 8) and AGAINST Taro's nominees (Proposal 7) on the Company's form of proxy card. We also urge minority shareholders to vote against Proposals 1, 3, 4, and 5 regarding executive and director compensation, which under Israeli law are considered interested-party transactions. Each of these Proposals requires the support of a majority of the minority of shareholders that actually vote. Therefore, if a majority of the minority shareholders vote against each of these Proposals, then each one will not pass. At our demand Taro added BlueMountain's nominees, Mr. Ben-Ami Rosenfeld and Ms. Adi Bershadsky, to the Revised Notice of Annual General Meeting of Shareholders dated August 8, 2013 (the "Proxy Statement" ^ 1). In the Proxy Statement, Taro stated that its Board of Directors (the "Board") "was not able to conclude that either of these nominees has 'financial and accounting expertise'", thus insinuating that our candidates may lack such expertise. In view of the Board's decision to continue to support only its own nominees, it may have been in the Board's interest to have refrained at this stage from confirming our candidates' financial and accounting expertise in an attempt to dissuade minority shareholders from supporting our candidates. That decision is notwithstanding the background, education, and talents of these two distinguished individuals and their affirmative declarations that they possess the required expertise. We disagree with the Board's conclusion and have informed the Board that we are of the opinion that it has breached its fiduciary duties in not actively seeking the information necessary to confirm the candidates' financial and accounting expertise, information that has been twice offered to the Board. In any event, the fact that the Board refused to reach such affirmative conclusion does not in any way disqualify either candidate from serving as External Director of the Company, nor does it justify the re-election of the incumbent External Directors, who in our opinion failed to perform their duties to protect the interests of all shareholders. We further believe that Taro has not fully complied with its obligations under the Israeli Companies Law (the "Companies Law") regarding the implementation of the voting procedures for this election and has failed to clarify certain matters in this regard. On August 13, 2013, BlueMountain's Israeli legal counsel, Adv. Oren Shenkar, sent a letter to Taro requesting clarifications concerning the Board's deliberations regarding our candidates and the expected form of the 2013 proxy card. A link to this letter is included as Exhibit C. On August 20, 2013, we received a reply from Taro's external counsel, a link to which is included as Exhibit D. As is plainly evident, the response did not address our questions or concerns. Moreover, the manner in which it failed to address our good faith questions can only be construed as deliberate. Earlier today our Israeli counsel delivered a new letter to Taro's attorney, which is attached as Exhibit A. It is our opinion that Taro is continuing to disregard our rights as minority shareholders and our sincere efforts to introduce to the Board worthy and capable External Directors. As discussed in detail in this new letter to Taro, we believe the current form of proxy card is not in compliance with the Companies Law. The form of proxy card includes endorsements, notably the Board's recommendation that shareholders vote for the re-election of the current directors and for the approval of certain other directors' remuneration which, to our understanding of the Companies Law, should not be included on the card. In addition, the form of proxy card includes a statement notifying shareholders that if they fail to issue an instruction to vote "For," "Against," or "Abstain" on a particular proposal their vote will be cast in favor of the Board's recommendation on such proposal. In fact, we believe applicable Israeli law is designed to prevent this kind of discretionary voting on behalf of minority shareholders and does not permit the shares of minority shareholders to be automatically voted in favor of the Board's recommendation on proposals where the shareholder does not issue any voting instruction. Furthermore, the voting instruction form being used by US brokers for distribution to the shareholders of the Company fails to include the required affirmation that the shareholder is not a controlling shareholder and does not have a personal interest in the applicable resolution. The failure by the Company to assure that such declaration was included may result in the disqualification of votes made in this manner under Israeli law. Not only do we believe that the voting instruction form does not include the affirmation necessary for compliance with applicable law, but the voting instruction form is also conveniently very confusing to complete properly. While we retain all rights to seek remedies on this matter, BlueMountain has hired a leading proxy solicitation firm, Innisfree M&A Incorporated ("Innisfree"), to help ensure that all minority shareholders are aware of their rights and to assist them in voting for BlueMountain's independent External Director nominees. We ask that all minority shareholders who are seeking to add independent voices in the boardroom and are committed to looking out for their best interests to contact Innisfree toll-free at (888) 750-5834 (institutions, banks, and brokers may call collect at (212) 750-5833) to indicate how they have voted. It is important to note that if a shareholder believes that he or she erroneously voted shares, it is not too late to change the vote. Please contact Innisfree for help should you be concerned. We remind shareholders that their votes do not have to be submitted until September 10, 2013 at 3:00 AM EDT and that they should avail themselves of the necessary time and resources to make an informed decision and register an accurate vote. Included with this press release as Exhibit B is a link to an example of a completed voting instruction form consistent with how BlueMountain will vote its shares. Given the concerns expressed above, and in more detail in our letter in Exhibit A, this form may need to be amended and re-issued as a result of its potential deficiencies. Should the Company issue a new form, Innisfree will assist shareholders in completing such new form. For now, out of an abundance of caution, we are assuming that the current version of the voting instruction form will not be amended and are using it as our example in Exhibit B. Any shareholder who intends to vote in the same manner as BlueMountain should complete his or her form consistent with this example. Voting on Other Interested-Party Transactions BlueMountain also wishes to inform fellow minority shareholders that upon further scrutiny and consideration of the Proxy Statement, we have additionally decided to vote AGAINST: Proposal 1: To approve the Company's Compensation Policy Under the Requirements of the Israeli Companies Law 5759-1999; Proposal 3: To approve and ratify the remuneration of Mr. Dilip Shanghvi, Chairman of the Board of Directors of the Company; Proposal 4: To approve and ratify the remuneration of Mr. Sudhir Valia, member of the Board of Directors of the Company; and To approve and ratify the remuneration of Mr. Subramanian Proposal 5: Kalyanasundaram (known in the industry as Kal Sundaram), Chief Executive Office of the Company. As mentioned above, each of these proposals requires a separate vote and requires the support of a majority of the minority of shareholders that actually vote. Therefore, if the majority of our fellow minority shareholders vote against such resolutions, these current non-external and non-independent directors will not be entitled to receive the proposed remuneration from the Company. Our reasons for voting against each of the above proposals are: The Companies Law sets very specific requirements in order for an External Director to be eligible for election. The goal of these requirements is to ensure the independence of the candidate and the elimination of conflicts of interest or other incentives that could impair the objectivity of the External Director and his or her ability to fulfill his or her fiduciary duty to all shareholders. For this reason, External Directors sit on the most important Board committees including the Audit and Compensation Committees. In fact, each of these committees must be chaired by an External Director. The External Directors are required to be heavily engaged Board members – something that if executed properly requires significant time, energy, and fortitude. Depending on the number of meetings in a given year, we estimate that an External Director will be paid approximately $40,000 per year. The reason for this is to ensure that financial motivations do not create a conflict of interest. Hence with respect to Proposal 4, which calls for non-External Director Mr. Sudhir Valia to be compensated with an annual fee of $560,134 and an annual bonus of up to 100% of his annual fee that could bring his total compensation to $1,120,268, we do not feel that a non-External Director should be compensated at approximately 30x the level of an External Director. The incentive to simply serve at the pleasure of the controlling shareholder is far too strong. For this reason BlueMountain is voting against Proposal 4. With respect to Proposal 5, which calls for Mr. Kal Sundaram to be compensated an annual fee of $500,000 and an annual bonus of up to 100% of his annual fee that could bring his total compensation to $1,000,000, we acknowledge that this is not an unreasonable amount for a Chief Executive Officer of his background and experience. However, BlueMountain objects to the form and structure of his compensation. Proposal 5 of the Proxy Statement says, "Mr. Sundaram may devote up to 20% of his time to continue to be employed and provide services to Sun Pharma [Sun Pharmaceutical Industries Ltd., or "Sun"], and Taro may pay Mr. Sundaram's compensation either directly to him or through Sun Pharma." We would have at least expected Taro to pay its own Chief Executive Officer's salary directly so as to more appropriately align his interests with those of the Company. This arrangement explicitly creates a conflict of interest for Mr. Sundaram with respect to minority shareholders and for this reason BlueMountain is voting against Proposal 5. With respect to Proposal 3, which calls for Mr. Dilip Shanghvi to be compensated an annual fee of $869,648 and an annual bonus of up to 100% of his annual fee that could bring his total compensation to $1,739,296, we believe this amount is excessive in light of Mr. Shanghvi's non-executive role at Taro. In addition, Mr. Shanghvi is the founder of Sun and based on publicly available information, is still a significant owner of that company. Hence he benefits personally and directly from Taro through the valuation accorded to Taro through Sun's public market value. If anything, we believe the spirit of good corporate governance would dictate that Mr. Shanghvi receive de minimis compensation for his chairmanship of Taro's Board, similar to his predecessor, the current Chief Executive Officer Kal Sundaram, who received no compensation. For these reasons BlueMountain is voting against Proposal 3. With respect to Proposal 1, which calls for the approval of the Company's Compensation Policy, we observe that the policy has been intentionally drafted in extremely vague terms. It appears not to comply with the objectives set forth in Section 267B of the Companies Law, which require that the remuneration policy is structured to promote the goals of the Company in accordance with its long-term business plan and create worthy incentives for the Company's executives based on clearly quantifiable criteria. Moreover, according to the Proxy Statement, each of Proposals 3, 4, and 5 were deemed to be "in line with the Company's Compensation Policy." Since we do not agree with Proposals 3, 4, and 5, we cannot support Proposal 1. Hence BlueMountain is voting against Proposal 1. Lastly, we would note that each of Proposals 3, 4, and 5 were approved by the Audit and Compensation Committees of Taro's Board. The current External Directors of the Company, whose re-election we believe should be voted down, are two of the three members of the Compensation Committee and one of them serves as its chairperson. As such, they should be held accountable for endorsing policies that, in our opinion, create potential conflicts of interest between Taro's controlling shareholders and its minority shareholders, to the detriment of the minority shareholders. When these decisions are also viewed against the fact that these same External Directors accepted the $39.50 offer from Sun in August 2012, we believe there exists clear evidence of a lack of independence on Taro's Board. We feel that our fellow minority shareholders should know that in spite of the concerns expressed in this letter, we have reached out to the Company's Board and urged it to commence a dialogue with BlueMountain and the other minority shareholders regarding the manner in which the Company should be managed for the benefit of all shareholders. We intend to continue, in good faith, to strive for such an understanding; however, we suspect that until the controlling shareholder and Taro's Board recognize that the interests of the minority shareholders deserve to be acknowledged and supported, reaching such an outcome will be difficult. We believe that the best path to ensuring a level playing field for all shareholders at Taro is for minority shareholders to exercise their rights to vote AGAINST the re-election of the incumbent External Directors, to vote FOR BlueMountain's candidates, and to vote AGAINST the above proposals on remuneration. Contacts: BlueMountain Capital Management, LLC Mary Kate Dubuss (646) 808-3731 email@example.com Doug Hesney (212) 704-7385 firstname.lastname@example.org Innisfree M&A Incorporated Scott Winter / Jonathan Salzberger / Larry Miller (212) 750-5833 _________________________ ^1 See (http://www.sec.gov/Archives/edgar/data/906338/000115752313004016/a50687516.htm) EXHIBIT A August 26, 2013 Mr. Cliff Felig, Adv. Meitar Liquornik Geva & Leshem Brandwein & Co. 16 Abba Hillel St. Ramat Gan 525608 Dear Mr. Felig, Re: Taro Pharmaceutical Industries Ltd. On behalf of my client, BlueMountain Capital Management, LLC ("BlueMountain"), please find below my response to your letter dated August 19, 2013: BlueMountain is deeply disappointed that the Board of Directors (the "Board") of Taro Pharmaceutical Industries Ltd. ("Taro" or the "Company") has deliberately ignored BlueMountain's requests and failed to address 1. the concerns expressed in its letters. Specifically, BlueMountain is disappointed that Taro has failed to review the qualifications of its nominees diligently and in good faith as it is required to do in discharging its corporate duties. In BlueMountain's letter dated August 1, 2013, BlueMountain proposed to provide Taro with any additional information required by the Company's Board to examine BlueMountain's nominees' financial and accounting expertise. Unfortunately, Taro's Board has ignored this offer, and without requesting additional information or contacting these two individuals, publicly announced that it was unable to conclude that the 2. said nominees have financial and accounting expertise. As you know, beyond the description of their background, education and skills, Mr. Ben-Ami Rosenfeld and Ms. Adi Bershadsky provided the Board with affirmative declarations that they possess the required expertise. To ignore declarations from these two distinguished individuals without requesting additional information or asking questions, exposes the flawed nature of the Board's consideration. Consequently, BlueMountain approached Taro once again in good faith, through the undersigned, in the letter dated August 13, 2013. In that 3. letter, BlueMountain again offered to provide any additional information required to demonstrate the candidates' financial and accounting expertise and offered to have the candidates appear before the Board. Taro's response, in which it asserted that it "does not understand the basis for [BlueMountain's] assertion that there may be additional information regarding these nominees that may also be relevant to Taro's shareholders" [emphasis added – O.S.] and that "any such additional information should have been included in the material that [BlueMountain] 4. already sent to Taro," is completely nonresponsive, since the additional information is clearly not required by the shareholders (who can well evaluate the impressive background, education, skills, experience, and knowledge of BlueMountain's nominees based on the information already delivered to the Company), but rather by Taro's Board, in order for it to be able to discharge its legal duty to review and determine each nominee's financial and accounting expertise. In fact, the Board was obligated to approach BlueMountain or the candidates of its own accord, to obtain any additional information it 5. required in order to confirm their expertise. The failure to discharge such duty constitutes, in our opinion, a clear breach of the Board's fiduciary duties, including its obligations under Sections 252, 253, and 254(a) of the Israeli Companies Law, 5759-1999 (the "Companies Law"). In my letter to Taro dated August 13, 2013, I requested a copy of the proxy card (the "proxy card") which Taro intended to deliver to its shareholders, in order to verify its compliance with Israeli law. Rather 6. than complying with this request, Taro posted the proxy card on its website and began to solicit and collect voting instructions from the Company's shareholders using the proxy card (including through the use of a soliciting firm). After reviewing the proxy card, we believe that it does not comply with Israeli law, inter alia, because the Company's Board has used the proxy card to implore the shareholders to elect the incumbent members of the Board for an additional term of office and to approve handsome compensation packages for themselves. In other words, the Board is 7. recommending that the Company's shareholders support the interested-party resolutions which are presented to the shareholders, and it is doing so not only in the Proxy Statement but also on the physical card by which shareholders are expected to cast their votes. In our opinion, Israeli law forbids the endorsement of interested-party transactions in this manner. Moreover, contrary to Israeli law, the proxy statement and the proxy card provide that any non-vote by a shareholder on any resolution on the 8. agenda will be deemed to be a vote in favor of the Board's recommendation, instead of such non-vote being deemed as non-participation in the vote on such resolution. Further, it appears that the proxy card designed by Broadridge Financial Solutions Inc. for use by the shareholders, as well as the voting form used on Broadridge's website for direct voting, do not include the required affirmation that each voting shareholder has no personal 9. interest in resolutions 1, 3, 4, 5, 7a, 7b, 8a, and 8b and is not a Controlling Shareholder of Taro, as that term is defined in the Company's revised proxy statement dated August 8, 2013. The failure to include this affirmation is a breach of the Companies Law as well as applicable regulations promulgated thereunder. In light of the Board's conduct (including its recommendation to re-elect the current External Directors who, in the opinion of a significant 10. number of minority shareholders, have failed to perform their required duties), and without waiving any right available to BlueMountain under applicable law, BlueMountain intends to approach the Company's shareholders and inform them that BlueMountain will vote: a. against the re-election of the current External Directors; b. in favor of BlueMountain's nominees; and c. against all of the interested-party transactions. Additionally, BlueMountain will explain to its fellow minority shareholders how they may complete the proxy card if they wish to vote in the same manner as BlueMountain, which it hopes and believes a majority of the minority shareholders will do. BlueMountain stands by its original offer of August 1, 2013 to commence, together with other minority shareholders, a dialogue with Taro's Board 11. regarding BlueMountain's candidates for External Director and the manner in which the Company can be managed for the benefit of all of its shareholders. Nothing stated herein waives any right or claim of my client against 12. Taro's Board of Directors, and all of my clients' rights are hereby reserved. Sincerely, Oren Shenkar, Adv. EXHIBIT B Example of a completed voter instruction form: http://bluemountaincapital.com/taro/ExhibitB EXHIBIT C Letter from BlueMountain's attorney to Taro on August 13, 2013: http://bluemountaincapital.com/taro/ExhibitC EXHIBIT D Letter from Taro's counsel to BlueMountain on August 20, 2013: http://bluemountaincapital.com/taro/ExhibitD SOURCE BlueMountain Capital Management Website: http://bluemountaincapital.com
BlueMountain Capital Management, LLC Urges Minority Shareholders to Vote For BlueMountain's Independent External Nominees to the
Press spacebar to pause and continue. Press esc to stop.