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IzSo Capital Writes to Taro Pharmaceutical Board Demanding that Liability Protection Management Proposals be Removed Immediately from Agenda for Annual Shareholders' Meeting

NEW YORK, Dec. 13, 2011 /PRNewswire/ -- IsZo Capital Management LP, one of the largest minority shareholders of Taro Pharmaceutical Industries Ltd. (Pink Sheets: TAROF), announced today that it delivered the following letter to the Board of Directors of Taro demanding that it withdraw immediately from the agenda for the upcoming annual shareholders' meeting certain liability protection management proposals.

December 13, 2011

Board of Directors of
Taro Pharmaceutical Industries Ltd.

Euro Park (Italy Building)

Yakum Business Park, Yakum 60972, Israel

Attention: Dilip Shanghvi, Chairman of the Board
               Dan Biran, Chairman of the Audit Committee
               Members of the Special Committee Evaluating Sun Acquisition Proposal

Re: Taro's Annual General Meeting of Shareholders

Reference: our letter dated November 29, 2011

Dear Members of the Board, Audit Committee and Special Committee:

              We are writing to you, on an urgent basis, as follows:

1.            In our letter dated November 29, 2011, to which you have not responded, we expressed our dissatisfaction with the Sun Pharmaceutical Industries ("Sun") acquisition proposal and demanded that you exercise your fiduciary duties, and reject Sun's proposal as the offer price is grossly inadequate, substantially undervalues Taro Pharmaceutical Industries ("Taro") and is not in the best interest of Taro and its minority shareholders.

2.            After reviewing Taro's recently filed proxy statement for this year's annual meeting of shareholders, we have learned that in contradiction to our demand that you, as our fiduciaries, follow your obligations, to protect the interest of Taro's minority shareholders and reject Sun's grossly inadequate offer, you have decided to act for your own benefit, and approved and recommended that Taro's shareholders approve, the grant of indemnification, insurance and exculpation protections to Taro's directors and officers, including for breaches of their duty of care, violations of securities laws and disclosure obligations and violations in connection with a merger or other going private transaction.

3.            In this regard, we would like to inform you, as follows:

3.1.        The abovementioned action, which is clearly intended to protect Taro's Board members and management in the context of Sun's grossly inadequate and opportunistic offer, when Taro's Board members are obligated to exercise their fiduciary duties, to act solely for the benefit of the company and all shareholders and to focus on maximizing Taro's shareholder value, constitutes, undoubtedly, a breach of your fiduciary duties.

3.2.        As explicitly mentioned in the proxy statement, the proposed resolutions to grant Taro's Board members and management indemnification, insurance and exculpation protections, are designed to bolster Taro's Board and management liability protections while Sun's going private transaction looms in the horizon. One should ask himself: "why do the members of the Board of Directors require such protections if they intend to exercise their fiduciary duties and reject Sun's grossly inadequate offer? Does this mean that Taro's Board has already decided to approve Sun's proposal and is bracing itself for future litigation? If the answer is yes, what is the purpose of the Special Committee?"

            The answers to the above questions are clear on their face. Taro's actions up to this point, including its failure to timely inform its shareholders of the identity of the members of the Special Committee or their affiliation (or lack thereof) with Sun, raise a serious concern as to the independent judgment being practiced by the Special Committee. Such actions clearly indicate that the members of the Board of Directors of Taro, the majority of which are affiliated with Sun, have already made a decision to approve Sun's grossly inadequate offer, rather than looking after the interests of all shareholders of the company and conducting a fair process in a situation in which Sun, the controlling shareholder of Taro, intends to squeeze out the minority at a grossly inadequate price. These actions undoubtedly constitute a breach of Taro's Board fiduciary duties.

            We would like to remind you that we fully expect the members of the Board of Directors, the Audit Committee and Special Committee to act for the benefit of all of Taro's shareholders and conduct a process that will maximize Taro's shareholder value in the context of Sun's proposal.

3.3.        Moreover, approval of indemnification, insurance and exculpation protections to all members of Taro's Board, including to the members of the Special Committee, "in light of the legal exposure that directors of public companies face in connection with going private transactions like the one proposed to the Company by Sun Pharma…" (as explicitly mentioned in the proxy statement), when Taro's Special Committee is required to evaluate Sun's proposal independently and to act in the best interest of Taro's minority shareholders, constitutes a clear attempt to annul the clear legal risk exposures of the Special Committee members, associated with the approval of Sun's grossly inadequate offer, in order to impair the independent judgment of the Special Committee members when evaluating Sun's proposal to Taro. We see this attempt as a serious breach of Taro's Board fiduciary duties.

3.4.        Moreover, Taro has failed to disclose in its proxy statement the personal interest that each of the members of Taro's Board of Directors has in the abovementioned management proposals to grant indemnification, insurance and exculpation protections to Taro's directors and management. We do not see this failure as a technical issue but rather as a material issue. As you are well aware, the considerations of a "reasonable investor" are different when they are based on relevant information, and in particular, on any insider personal interest in a management proposal, compared to a situation in which the investor is not aware that such personal interest is involved. By failing to disclose to Taro's shareholders, that each of you has a personal interest in approving the above referenced resolutions – while Sun's proposal looms large, you have materially prejudiced the basic rights of Taro's minority shareholders to receive all relevant information in order to properly evaluate these liability protection management proposals and to exercise their rights as shareholders of Taro.

4.            In light of the foregoing, we expect and demand from Taro to remove immediately Items 4 through 8 from the agenda of the upcoming shareholders' meeting of Taro with respect to the grant of indemnification, insurance and exculpation to Taro's members of the Board of Directors and management and to publish an updated proxy statement without those voting items.


/s/ Brian Sheehy
Brian Sheehy
Managing Partner
IsZo Capital

Cc: Adv. Adam M. Klein, Goldfarb Seligman & Co.

Legal Counsel to the Special Committee of Taro Pharmaceutical Industries Ltd.    Evaluating Sun Acquisition Proposal

SOURCE IsZo Capital Management LP
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