Elliott Associates Letter to Citrix

June 11, 2015

The Board of Directors

Citrix Systems, Inc.

851 West Cypress Creek Road

Fort Lauderdale, FL 33309

Attn: Thomas Bogan, Chairman

Attn: Mark Templeton, CEO

Dear Thomas, Mark and Members of the Board:

I am writing to you on behalf of Elliott Associates, L.P. and Elliott International, L.P. (together, “Elliott” or “we”), which together own 7.1% of the common stock and equivalents of Citrix Systems, Inc. (the “Company” or, “Citrix”), making us one of your largest stockholders.

We believe that Citrix can achieve a stock price of $90 – $100+ per share by the end of 2016. This outcome – which represents an increase in stockholder value of approximately 50% – is achievable because Citrix has leading technology franchises in attractive markets but has struggled operationally for years. As a result, today Citrix’s operations and product portfolio represent an opportunity for improvement of uniquely significant magnitude.

The purpose of today’s letter is to a) introduce ourselves, b) preview some of the extensive work we have done to validate the $90 – $100+ per share opportunity, and c) respectfully request a meeting with the Company’s board of directors (the “Board”) to share our detailed thoughts about how to improve Citrix for the benefit of stockholders, employees and customers.

Today’s letter is being made public primarily because Elliott has become a 13D filer. We want to be clear about our intentions and avoid undue speculation.

To be clear, we approach this opportunity with tremendous respect for the work Mark and the entire Citrix team have done to achieve technological leadership, particularly in the high-quality markets in which Citrix participates. Without their vision, the enormous opportunity outlined below would not exist today.

About Elliott

Elliott is an investment firm founded in 1977 that today manages more than $26 billion of capital for both institutional and individual investors. We are a multi-strategy firm active in debt, equities, commodities, currencies and various other asset classes across a range of industries. Investing in the technology sector is one of our most active efforts at Elliott and one in which we have built a long track record.

Within the technology sector, we have made approximately three dozen active investments and have successfully identified value-creating opportunities at companies such as BMC, Informatica, Brocade, Riverbed, Juniper, Novell/Attachmate, Blue Coat and many others.

One key differentiating factor in Elliott’s active investments, especially in the technology sector, is our deep focus on operations. Our team includes experienced and proven C-level executives with technical and operational capabilities from software and technology companies. These executives evaluate operations, products and markets within our investments and work to develop strategies to streamline operations, grow revenue and create value. We also have long-lasting engagements with leading operations consulting firms, sales and marketing specialists, and technical consulting firms that we deploy on our investments. Finally, in addition to our public portfolio, we have significant investments in private technology companies, which provide important insights into operating best practices, market trends and general industry knowledge.

The Citrix Opportunity

Citrix has great products in strong markets. However, Citrix has struggled operationally and has consequently missed a profound value creation opportunity to capitalize on these products and markets. Despite Citrix’s strong products, the Company’s stock price performance tells the story of deep underperformance across every relevant benchmark, including its closest peers, over every time period during the last six years:

Over the years, Citrix has recognized that operational changes are needed and that its product portfolio requires rationalization. In 2010, Citrix made promises of “efficiency” and “focus” with the goal of achieving margin targets and rationalizing the portfolio. Unfortunately, these promises were followed by a period of nearly 400 basis points of margin contraction and an expansion into several non-core product categories.

In early 2014, Citrix again made a series of promises to address the operational and share price underperformance. Despite the fact that these promises were nearly identical to the promises made in 2010, many investors and analysts hoped that this time Citrix was finally going to remedy the serious deficiencies in its cost structure. However, operating expenses have continued to outpace revenue growth, and both profit margins and profit dollars have declined over the last 12 months.

It is perhaps because Citrix’s promises have uniformly been followed by increased costs and greater product breadth that the research community maintains a skeptical approach to Citrix and continues to call for organizational change, as the quotes below illustrate:

  • “We maintain our Buy rating, although we stress that significant changes are needed to help drive value for shareholders, which would include rationalizing business lines as well as further cost reductions” – Goldman Sachs, April 2015
  • “We have found that it takes the same time, if not longer, to explain the businesses that Citrix is in as to explain Microsoft. We believe divestitures would help clarify the business for investors, which would help the stock price” – Sanford Bernstein, April 2015
  • The Company’s execution has been terribly poor for more than 2 years, and we believe management will be compelled to make more organizational changes going forward – beyond those already announced” – Credit Suisse, April 2015

This is just a small sampling of commentary, but it provides a highly accurate picture of analyst sentiment toward Citrix and is consistent with other well-respected software analysts. Furthermore, based on numerous conversations with your stockholder base, we believe these quotes are representative of stockholder sentiment as well. Unfulfilled announcements of expense rebalancing and incremental, recurring restructurings are damaging to companies and destabilizing to their employees and customer relationships. In Citrix’s case, these announcements have also impaired the Company’s credibility with stockholders. We believe that Citrix today has a far superior opportunity to make serious and lasting changes and to create sustainable value for stockholders.

New Citrix Operating Plan

Today, Elliott is formally requesting a meeting with the Board to share the details of an operational plan that we believe will create tremendous value for stockholders. What we call the “New Citrix” Operating Plan (the “New Citrix Plan”) was developed through exhaustive research and with the help of a full team of operating partners with proven experience turning around software companies. That team includes the following:

  • Senior Software Executives: We have assembled a team of senior software executives to evaluate Citrix and the opportunity for value creation. These are C-level software executives who have assisted us in understanding the operating and strategic possibilities at Citrix and who have helped diagnose issues at, and develop solutions for, other software and technology companies in which we have invested.
  • Top-Tier Consulting Firm: We retained a leading consulting firm to aid in our in-depth diligence on Citrix’s products and markets, conducting a survey of more than 400 customers and channel partners, enabling us to better understand the competitive landscape from a customer’s perspective and identify key factors in purchase decisions.
  • Sales and Marketing Specialist Firm: We engaged with a leading salesforce consulting firm to analyze Citrix’s go-to-market strategy and its efficiency. We evaluated Citrix’s salesforce organization structure, typical deal team composition, channel ecosystem and compensation methodology to determine what steps are needed to conform Citrix’s go-to-market strategy to the industry’s best practices.
  • Operations Consultant: We worked with a major operations consulting firm to conduct a “deep-dive” on Citrix’s operations in product development, professional services and various support and corporate functions, which provided important insight into Citrix’s geographic footprint, utilization of its international workforce and efficiency of its product development organization.
  • IT Specialists and Data Center Engineers: We worked with highly experienced technical experts with deep knowledge of Citrix’s product portfolio to better understand how it evolved, including understanding perspectives on product roadmaps, critical features / functionality and how these products integrate into broader IT solutions.
  • Investment Banking Firms: We engaged with two leading investment banks to ensure our understanding of capital return options, as well as strategic options for the GoTo and NetScaler divisions.

The New Citrix Plan is based upon two driving principles: the need for i) fundamental change and ii) effective oversight. The key components for fundamental change are as follows:

1) Implementation of Operational Best Practices: Citrix’s cost structure is the result of years of layered complexity and expenses. The structure has become highly inefficient in terms of actual cost and is also ineffective at generating revenue growth. We have identified numerous opportunities throughout the organization for significant improvement, which we believe will result in both superior revenue performance and a more efficient use of resources. In total, our New Citrix operating model target for operating expense is a range of 54.5% – 55.0% of revenue by 2017relative to 63% over the last 12 months. Our team has identified the major areas for improvement as follows:

  • Sales & Marketing: Citrix’s sales & marketing organization is operating well below industry benchmarks on efficiency and effectiveness, with the weakest metrics among its peers. This is primarily the result of a highly cumbersome and ineffective go-to-market strategy. Critical operational metrics, including the ratios of management positions to quota-carrying reps and sales engineers to field reps, remain out of line with industry best practices. This inefficiency has led to weak productivity per sales FTE and is exacerbated by poor alignment between performance and compensation. In addition, Citrix’s channel strategy is stretched across too many channel partners, with important channel-enablement resources being directed to sub-scale partners. We are confident all of these issues are fixable through a full realignment to implement best practices in the areas of deal team composition, sales management span of control, channel management and compensation structure.
  • Research & Development: Citrix’s product development effort needs a full operational review with strong cross-functional participation. The recent product-release issues in both XenApp and XenDesktop, marred by critical feature gaps from prior versions, had a deep impact on execution over the last several years and demonstrated a disconnect between customer requirements and development roadmaps. In addition, Citrix’s recent history of funding speculative R&D initiatives without clear route-to-market or tangible competitive advantage must be reevaluated immediately. These speculative or non-core projects need to be scaled back or eliminated and resources reallocated to the product categories where Citrix has the greatest likelihood of success. Return-on-investment project tracking with a focus on risk-adjusted returns needs to be implemented and strictly followed.
  • Product Portfolio: Citrix’s product portfolio is too broad for its scale and contains far too many underperforming product lines that consume valuable resources, have low or negative (i.e., loss-making) return profiles, and serve as distractions. For example, we believe CloudBridge, CloudPlatform and ByteMobile are non-core, are underperforming and are distractions to the management team. We believe these businesses, particularly ByteMobile, should be sold or realigned.

2) Evaluation of High-Value Non-Core Assets: Citrix possesses high-value, strategic assets that we believe can be separated from the core Workspace Services segment: the GoTo franchise and NetScaler. Such separations would not only be meaningfully accretive to value but also would enable Citrix management to focus on improving the Company’s core operational execution.

  • Spin or Sale of the GoTo Franchise: While we recognize the broad notion of empowering a mobile workforce, this business’s go-to-market strategy, product development roadmap and end-market are absolutely distinct from the core of Citrix. GoTo is an attractive business with scale in its market, and we have confidence that it can realize significant value through several alternative transaction structures, including a sale or a spin. We also further believe that core Citrix’s management can create significantly more value for stockholders by focusing on operational execution rather than attempting to oversee the GoTo franchise.
  • Exploration of Strategic Alternatives for NetScaler: We are not explicitly advocating for a sale of NetScaler, but we believe the sale option should be seriously explored to assess potential strategic buyer interest and valuation, which we believe may be robust. NetScaler is an excellent business, and its ADC technology is an industry-leader; however, we believe Citrix has overly relied on the virtualization cross-sell, resulting in significant under-penetration in non-virtualization use-cases and within the telco vertical. We believe other strategic owners can accelerate NetScaler’s growth through greater scale and unique customer relationships. It is critical for the Board to consider whether Citrix is the parent company best positioned to maximize NetScaler’s value.

3) Capital Allocation: If effectively executed, the New Citrix Plan will result in tremendous value creation over the next several years. As a result, Citrix’s stock is deeply undervalued today. Furthermore, Citrix’s balance sheet is being under-utilized given its strong cash flow profile, even at today’s level of inefficiency. At a more appropriate 1.5x – 2.0x target net leverage ratio, Citrix would have $4.5 – $5.3 billion of buyback capacity through 2017 while maintaining an investment grade rating. Debt financing remains at historically attractive levels, and we believe Citrix should take advantage of this opportunity to repurchase 56 – 61 million shares from now through 2017.

4) Management: Over the past two years, Citrix has suffered a wave of senior-level management departures, which have introduced uncertainty and instability into the organization. In several cases (e.g., Sumit Dhawan and Bob Schultz), these valuable managers have left to join Citrix’s direct competitors. Citrix requires stable and confident leadership of its business units and, under the New Citrix Plan, will also require proven operational skillsets to drive fundamental change. Elliott is looking forward to working with Citrix to address its ability to retain and recruit top talent.

This high-level summary is a brief overview of the details supporting the New Citrix Plan. Though significant in magnitude, changes of this kind are relatively common in the software sector. Nonetheless, a key differentiator, and the second tenet of the New Citrix Plan, is effective oversight. A strong and capable Board that oversees and holds management accountable is critical. We look forward to discussing our recommendations regarding proper oversight of the New Citrix Plan’s execution.

New Citrix Plan Results

By implementing the New Citrix Plan and providing the oversight necessary to ensure its execution, we believe Citrix can achieve a stock price of $90 – $100+ per share by the end of 2016, excluding the impact of separating NetScaler and GoTo. We believe there is potentially significant upside from these price targets if Citrix executes on the separation of these high-value strategic assets. The table below details Elliott’s model scenarios supporting our stock price targets.

As this table demonstrates, reasonable revenue growth and P/E multiple assumptions can achieve tremendous results under the New Citrix Plan. Moreover, the vast majority of the value creation of approximately $26 in the Base Case is driven by operational improvements, as margin expansion drives approximately $207 per share of value increase and improved capital allocation drives approximately $6 per share of value increase.

Next Steps

As is always the case, we look forward to a collaborative and positive dialogue with Citrix’s Board and management. To that end, we respectfully request a meeting in the next few weeks with the full Board during which we can share a detailed presentation of the New Citrix Plan and discuss what we believe are the necessary steps for its implementation. It is our sincere hope that we can work together to implement the New Citrix Plan, which we are confident will create real and lasting value for your stockholders.

Elliott hopes that the Board also sees the need for fundamental change and oversight and will therefore be excited to embrace this opportunity. We would be remiss if we failed to note that, to date and as recently as last month, the Company has repeatedly resisted public calls for real change from the broader investment community. We hope that the Company can move on from that position and work together with us to realize the profound opportunity to create value that is undeniably before us. Elliott is prepared to push for change directly, but the far better course is for Citrix to embrace this offer of cooperation and for us to proceed collaboratively, and quickly, together.

Thank you very much for your time and consideration. I look forward to our meeting.

Best regards,

Jesse Cohn

Senior Portfolio Manager

Wynnefield Partners letter to MusclePharm

MusclePharm was recently taken to task by CONSAC, who went active in May with 7.4%. Wynnefield Partners has been active since April with a 7.7% stake. The two are pushing for corporate governance changes (more on that here, partial paywall). Below is Wynnefield's latest letter to MusclePharm. In it Wynnefield brings up the corporate governance issues, but also highlights liquidity concerns. 

June 8, 2015

Bradley J. Pyatt, Chairman of the Board;

Each of the Members of the Board of Directors

MusclePharm Corporation

4721 Ironton Street, Building A

Denver, Colorado 80239

Ladies and Gentlemen:

Wynnefield Capital Management, LLC and its affiliates (“Wynnefield”) are longtime and significant shareholders in MusclePharm Corporation (the “Company”). This letter is a follow up to our several earlier communications in which we expressed serious concerns with deficiencies in the Company requiring immediate attention in the areas of liquidity, corporate governance and transparency, and accuracy of disclosure to the public. We have previously attempted in good faith to bring these issues to the attention of management, but our concerns have been largely ignored. We, therefore, believe it is appropriate to write to the entire Board to ensure that the recently appointed independent directors are fully apprised of our most pressing concerns.


The Company announced in its first quarter earnings release on May 11, 2015, that its cash flow increased $5.9m – a year over year increase of 282%. CEO Brad Pyatt, commenting on the Company’s results, noted how pleased he was with the Company’s fundamentals and “the positive momentum we have built in continued revenue contributions, positive cash flow and sustainable margins.” He also noted active management of the Company’s cash position with strong increases of cash flow during the first quarter of 2015. The Company’s May 12, 2015 earnings conference call supported and went beyond these positive statements regarding the Company’s cash position and liquidity. CFO John Price noted that “cash flow provided by operations was $682,000 versus a use of cash of $1.9m in Q4 demonstrating improvement in our financial strength and solid position to meet long tern financial obligations.” Additionally, President Richard Estalella noted in response to a question about compliance with debt covenants that “we feel that we’ll be within all of our covenants by the end of Q2.”

There are a number of indicators, however, that strongly suggest that the true picture regarding liquidity may be very different. The First Amendment to the Company’s Manufacturing Agreement, dated March 2, 2015, with F.H.G. Corporation, d/b/a “Capstone Nutrition”, filed as Exhibit 10.1 and disclosed in Note #4 to the Company’s Form 10-Q for the first quarter of 2015, outlines in Section 19.8 of the agreement, payments owed Capstone Nutrition on the 30th, 60th, and 90th day from March 2, 2015, ‎totaling $2.5m. In addition, Note #7 to the Company’s Form 10-Q for the first quarter of 2015 discloses that, as of March 31, 2015, the Company had drawn down all $8m under its line of credit, putting the Company out of compliance with certain financial covenants, including requiring the line of credit balance to be at or below $3m for a minimum of 14 non-consecutive days per quarter, and requiring a written waiver from the bank, which the Company received that is effective until May 31, 2015 (no subsequent disclosure has been made regarding the status of the waiver after May 31, 2015). Yet despite these circumstances, the Company reported that, as of March 31, 2015, liquidity increased $3.7m to $4.7m, leaving us to conclude that the increase came entirely from a one time inventory drawdown of $7.2m, and not Brad Pyatt’s claims of “positive momentum … in continued revenue contribution, positive cash flow and sustainable margins.”

Corporate Governance

We are increasingly troubled by the Company’s May 8, 2015 amendments to its By-laws, summarized below, because of both the new hurdles and burdens they place on shareholder suffrage; especially when considered in light of the Company’s recent erratic corporate governance events. The By-laws were amended, i) to require that shareholders of the Company requesting a special meeting provide, in their request to the Company, certain specified information and set forth other requirements regarding delivery of such request; ii) to require that shareholders intending to act by written consent request a record date from the Company for such action, which request must include certain specified information and set forth other requirements regarding the delivery of written consents; iii) to require certain shareholder disclosure requirements regarding advance notice of shareholder proposals and shareholder nominations; iv) to provide that only the Board can fill vacancies of the Board; v) to provide that directors may be removed by a two-thirds (as opposed to majority) vote of the shareholders, as contemplated by NRS 78.335; and vi) to provide that that any person acquiring equity in the Company shall be deemed to have notice of and consented to Article VII, Section 5 of the By-laws, relating to choice of forum where to bring disputes.

We believe these provisions, which are viewed with disfavor by ISS, are nothing more than a thinly veiled attempt to entrench management and diminish their accountability to the shareholders of the Company.

The By-law changes are especially problematic when viewed in the context of the Company’s machinations regarding the composition of its Board of Directors. The Company’s first quarter earnings release states a present intention to increase the size of the Board to seven which was confirmed by Brad Pyatt during the May 12, 2015 earnings conference call. These statements, made after the Company had filed its proxy statement for the upcoming annual meeting of shareholders, seemed to demonstrate an intent to avoid a shareholder election to fill the newly created board seat and therefore thwart the shareholders’ primary method of board accountability. By not including the seventh director in the proxy statement to be voted on by the shareholders, the Board is empowered to appoint a candidate of its choosing to fill the new board seat after the annual meeting, further entrenching an already captive and acquiescent board.

The Company’s May 28, 2015 announcement of the en masse and management orchestrated resignation and replacement of the three independent members of the Board and the postponement of the annual meeting of shareholders until August 26, 2015, has further undermined shareholder confidence in the Company’s corporate governance controls and begs further explanation and disclosure. However, despite these major changes to the composition of the Board, the delay of the annual meeting, and the fixing of a new record date for shareholders, the Company continues to deny shareholders their basic democratic rights by attempting to procedurally deny the fundamental right of shareholders to submit nominees for election at the upcoming annual meeting. The newly amended Section 9 of Article II of the Company’s By-laws states that a public announcement of postponement or adjournment of the annual meeting does not reopen the advance notice of director nominee window. This is a very convenient result for the Company’s Board. Nevada corporate law, however, is clear that this transparent and highly orchestrated attempt to deny shareholder democracy will not succeed in depriving the shareholders of their ability to submit nominees for election to the Board. There is strong authority that challenges by-law advance notice provisions when there is a material change of circumstances occurring after the advance notice deadline. Nevada corporate law preserves the paramount importance of shareholder voting rights and requires a board to act to protect shareholder suffrage rights, including the ability to nominate candidates for election. Certainly the wholesale, simultaneous resignation and replacement of the Company’s independent directors constitutes such a material change requiring the Board to act and waive the advance notice provision of the Company’s By-laws.

We believe the fiduciary duties of the Company’s directors require the Board to take immediate action to address these issues and call upon the Board to take the following action:

1)Issue an immediate press release correcting any material misstatements regarding the Company’s current liquidity and cash flow position.

2)Announce the opening of a window for shareholder submission of nominees for election to the Company’s Board, including nominees to fill the newly created seventh board seat, in accordance with Nevada corporate law.

3)Provide a full explanation surrounding the mass resignation and replacement of the three independent directors of the Company.

4)Engage a qualified investment bank to assist management and the Board to fully explore all strategic opportunities to increase shareholder value, including auction of the Company.

We trust that you will accept our recommendations and incorporate them promptly to avoid further action by us. We request that you publically announce the steps that you are taking in response to this letter by June 19, 2015.

Very truly yours,

Wynnefield Capital Management, LLC

Marathon Partners Pens Yet Another Shutterfly Letter

June 4, 2015

Dear Fellow Shutterfly Shareholders:

The 2015 Annual Meeting of Shareholders (the "Annual Meeting") of Shutterfly, Inc. ("Shutterfly" or the "Company") is just over a week away.  Marathon Partners Equity Management, LLC, together with its affiliates ("Marathon Partners"), is one of the largest shareholders of Shutterfly, an investment we have held for almost seven years. Do not let the Company mislead you -- our interests are directly aligned with yours.  We appreciate the tremendous support we continue to receive from you in this election contest.  As shareholders, collectively, we have an exciting opportunity to turn over a new leaf at Shutterfly and elect a slate of extremely qualified director candidates who are deeply committed to ensuring that our collective best interests are looked after in the boardroom at all times. 

Unfortunately, since the Shutterfly Board of Directors (the "Board") does not appear to believe it can win on the merits, the Company has resorted to a series of desperate tactics aimed at misleading and confusing shareholders by making obviously false statements regarding Marathon Partners and our plans for Shutterfly.  The Board's intentions in making these false and misleading statements about us are highly transparent – unfortunately, it appears they will say and do anything, regardless of its validity, to attempt to sway your vote.  We urge you not to be misled and to review the facts and circumstances in making your voting decisions regarding the future of Shutterfly. 

Throughout this election contest, we have presented the facts, stuck to the real issues, and have proposed a qualified and well-diversified slate of director nominees with credentials specifically relevant to Shutterfly's business and current challenges.  We have been, and will continue to be, constructive and professional in our approach to this election contest and to the Company.

We would be remiss, however, not to definitively correct some of the Board's misinformation for the benefit of all.  While we will not dignify most of the Board's poorly conceived comments in its recent press release with responses, we hope that fixing some of the most blatant inaccuracies will put an end to the current Board's shameful and relentless spread of completely false information.  We urge you to pay no heed to the Company's repeated unprofessional and unethical scare tactics and vote your shares on the BLUE proxy card so we can give ourselves, as shareholders, the highest probability of unlocking substantial value for years to come at Shutterfly.

FALSE SHUTTERFLY CLAIM: Marathon Partners has a short-term "hidden agenda" with short-term interests that may not be aligned with those of Shutterfly shareholders.

THE FACTS: After nearly seven years of continuous ownership, it is clear that Marathon Partners does not bring a short-term agenda to the table as it seeks to protect and grow the value of its investments. It's not even clear that Shutterfly's "hidden agenda" conspiracy theory of creating a short-term "pop" and subsequent exit could be created by any single Shutterfly shareholder let alone one willing to go on to the Board in order to effect positive change for all shareholders. It is troubling that this Board would seek refuge in such far-fetched stories instead of working proactively to solve the very real issues that both ISS and Glass Lewis recently identified in their respective reports on this proxy contest.

FALSE SHUTTERFLY CLAIM: Marathon Partners' Mario Cibelli has put himself, his fund and his own investors in a tenuous position due to Marathon's concentration in Shutterfly stock.

THE FACTS: Marathon Partners has successfully pursued a concentrated, long-biased investment strategy for over 18 years. The current portfolio is not concentrated any differently than at other times in the past. Given Marathon Partners' investment style, the liquidity terms available to the underlying investors are designed to encourage a long-term oriented strategy with committed capital. Marathon Partners has a differentiated strategy and its long-term investor base allows it to pursue a strategy that has been rewarding over time.

The Board's guess as to the percentage of our main fund's assets allocated to the Company is terribly wrong and, quite frankly, irresponsible. Marathon Partners does have a dedicated special purpose vehicle that owns a significant amount of Shutterfly shares. This fund is the fourth successful special purpose fund that was launched over the past five years. Shutterfly's attempt to draw conclusions and offer up wild theories attached to our investment style is not productive and a poor use of time when real issues remain unresolved with the Company.

Like any investment manager that has continuously invested capital for an extended period of time, we have seen our fair share of successes and challenges. Cherry-picking a few companies over an 18-year span and then attempting to spin them into a narrative that is somehow relevant to Shutterfly and this proxy contest is desperate and unworthy of debate. We believe executives at several of our portfolio companies over the years would characterize our involvement as positive, supportive and informed. Some companies where our ownership spanned five years or longer include 1-800 CONTACTS, Expedia, Netflix and Outerwall. Our reputation as supportive, informed and contrarian investors with West Coast-based consumer tech companies is firmly intact.

FALSE SHUTTERFLY CLAIM:  If Marathon Partners and its nominees "secure control of over 30% of the Shutterfly Board, we believe that they will aggressively seek to slash investment in the business and borrow substantial sums of money to finance a much larger share buyback that far exceeds the risk a prudent Board should undertake when preserving the competitiveness of the business."

THE FACTS: We know of no instance in the history of U.S. corporate governance where a significant minority of a board of directors, such as three directors on a nine-member board, was able to unilaterally approve any board actions or proposals.  If elected, Marathon Partners and its nominees are fully committed to work constructively with the other members of the Board to protect the best interests of Shutterfly shareholders while seeking to enhance the value of your investment.  Marathon Partners continues to believe that intelligent repurchases of Shutterfly shares make sense for the Company. While we did advocate for more aggressive share repurchases, it is the Board that began executing share repurchases at a record pace. Given that Marathon Partners does not have any representatives on the Board at this time, it is only the current Board members that have supported the recent $300 million authorization. If they did not believe a buyback was in the best interests of shareholders, they should not have approved it.

Additionally, it is also the Board that approved the issuance of $300 million of debt. Marathon Partners did not make this decision, the Board did. Given the Board's decision to leverage the business, Marathon Partners has had strong opinions on how such proceeds are best utilized for shareholders, which includes accretive share repurchases and less emphasis on potentially risky M&A.

We are extremely pleased that neither ISS nor Glass Lewis were swayed by Shutterfly's distasteful rhetoric in this election contest.

Importantly, both ISS and Glass Lewis support the need for change on the Board and have both agreed with our most serious concerns regarding Shutterfly, particularly as they relate to the Company's consistently troubling executive compensation program.  In fact, citing numerous, serious concerns with the Company's executive compensation and a lack of responsiveness to shareholder concerns, both ISS and Glass Lewis recommended that shareholders vote against the Company's "Say on Pay" proposal and proposal to increase the shares available under Shutterfly's Equity Incentive Plan.   ISS further recommended that Shutterfly shareholders vote the BLUE proxy card to elect two of Marathon Partners' highly qualified nominees, Mario Cibelli and Thomas D. Hughes, to the Board at the upcoming Annual Meeting.  In its report, ISS stated:

"It is unfortunate that any long-term shareholder has to initiate a proxy contest to fully raise these issues, much less resolve them: a well-functioning board, shareholders have to believe, would have addressed them long before a contest became necessary, else what is the point of electing a board to begin with? Instead, as the evidence the dissidents have presented that years of poor stewardship by the incumbent board have led to an untenable situation in which the interests of shareholders collectively hold little sway in compensation, incentives, and strategy,it appears that significant change at the board level is warranted." 

Glass Lewis has likewise indirectly supported the need for change on the Board by recommending that shareholders withhold on Shutterfly nominee Stephen Killeen for executive compensation shortcoming and, importantly, noted that all three of Marathon Partners' nominees "have the requisite qualifications to capably serve on the Company's Board." 

Over the course of this proxy contest, Marathon Partners has purposely avoided bringing up certain interactions and conversations that have occurred over the past two years with certain Board members and executives of the Company in order to preserve a working relationship should our nominees be elected to the Board. Some of these interactions were very unusual and highly challenging for a concerned shareholder to hear when legitimate areas of concern were simply brought up for discussion. At this time, we will continue to be constructive and professional by sticking to the issues at hand and not devolve this proxy contest into a mud-slinging affair.

Importantly, we look forward to moving past this election contest and working constructively with members of management and the Board to effect positive change at Shutterfly on behalf of all shareholders.

With the Annual Meeting less than ten days away, we would like to thank the shareholders who have already cast their vote in support of Marathon Partners' nominees and we urge all shareholders who have not yet voted their shares to follow the instructions on the BLUE proxy card and vote to elect all three of our highly qualified nominees, Mario Cibelli, Marwan Fawaz and Thomas D. Hughes. If you have already voted to support management's nominees, there is still time to change your mind and vote for Marathon Partners' nominees by submitting a BLUEproxy card now that will effectively revoke any earlier proxy you may have granted to the Company.

Mario Cibelli

Armistice Capital 2nd letter to Spectrum Pharmaceuticals

Armistice Capital owns 6.6% of Spectrum Pharmaceuticals (been active since early May) and it is the fund's first activist campaign [our previous detailed thoughts here], letter below: 

Dr. Shrotriya:

I appreciate you traveling to New York to meet with me on Tuesday, May 19th. And I appreciate our subsequent phone conversations. However, saying that the Board takes its fiduciary responsibility "seriously" and that the Company will evaluate "any serious offer it receives" is not good enough.

How does the Board of Directors define a "serious offer"? After losing the Sandoz litigation and deferring Fusilev revenue in the first quarter earnings release, the market said SPPI was worth $5.68 per share. Even at that price 1/3 of the shares were sold short.  In our meetings it became clear that you believe my reference to a 40% premium, or $8 per share, is too low a purchase price for the Company. Why should your biased view outweigh an efficient market? As a long-term shareholder, I am positively biased, too. And I believe that the Company will fetch more than $8. But I recognize that the market is the ultimate weighing machine. To ignore it is both irresponsible and indefensible.

Your bias extends beyond share ownership. As discussed, executive compensation at Spectrum has been deplorable for more than ten years. Your Board has ignored two consecutive negative shareholder votes on the annual "Say on Pay." Not coincidentally, they are overpaid, too. The average board member at Spectrum earns nearly the same compensation as board members of Eli Lilly ("LLY") and Merck & Co ("MRK"), companies greater than 100x the size of SPPI. Over the last three years, Spectrum board members have earned 2x the compensation of board members of truly comparable hematology/oncology companies such as AMAG Pharmaceuticals ("AMAG"), Array Biopharma ("ARRY"), Infinity Pharmaceuticals ("INFI"), and TG Therapeutics ("TGTX"). Each of these companies has a market capitalization twice as large as SPPI. Of the seven board members at Spectrum, three have at one point or another had their primary income come from the Company. We believe all but one have worked with you in some capacity in the past. Two have had family members employed at the Company.

Beyond bias, not one of your Board members has valuation expertise. Not one of your Board members has shepherded an exit greater than $125 million. In fact, from the dates your Board members have become affiliated with public companies (not including SPPI) through the end of May 2015, the median share price performance of those companies is -49%. Not surprisingly, they are unwilling to engage in a conversation with me about creating shareholder value.

Armistice reiterates our request for Spectrum to immediately disclose any formal or informal expressions of interest and/or non-binding offers to acquire the Company. We are aware of multiple parties interested in acquiring SPPI. Some of these companies have an outward strategy to make and integrate acquisitions and have completed purchases significantly larger than SPPI. We request that the Board of Directors immediately engage a top-tier investment bank and initiate a formal process to sell the Company. We are happy to provide any bank a list of potential suitors or to make the introductions personally.

I want to be clear. Our interest in selling the Company is not driven by short-term thinking. It is the logical conclusion to years of unfulfilled promises. To your credit, you have amassed a collection of valuable assets. However, you have demonstrated an indifference to execution that puts the value of these assets at risk.

Take Folotyn, as an example. You made a tremendous bargain purchase of Allos Therapeutics ("ALTH") in 2012. At the time you projected Folotyn sales could eventually reach $100 million. ALTH had given guidance of $50-55 million of sales for 2012. In Spectrum's hands, Folotyn has yet to achieve $50 million of annual sales. You referenced combination studies with Fusilev. Those have been cancelled due to patient preference for an oral rinse, like MuGard. You referenced label expansion into indications like breast, lung, and acute lymphoblastic leukemia ("ALL"). No work has been done. Not pursuing non-small cell lung cancer is most disappointing given the positive proof-of-concept data generated by ALTH.

Look at Marqibo. Once again, you made a tremendous bargain purchase of Talon Therapeutics ("TLON"). Once again, you touted the benefits of the drug – the ability to give higher doses and the reduction of peripheral neuropathy. You talked about twenty indications of use for traditional vincristine. Yet you have not taken any concrete steps to capture the opportunity. We believe the ALL trial is enrolling slowly and the German non-Hodgkin's lymphoma ("NHL") trial is years from completion. The Company seems barely aware of the 2004 FDA Oncologic Drugs Advisory Committee meeting to discuss the Marqibo data then generated by Inex and Enzon Pharmaceuticals. Armistice believes there is an accelerated path to NCCN Compendium listing. Your indifference to execution impairs Marqibo's value.

The elephant in the room is Fusilev. On February 27, 2013, you stated, "our product revenue will grow and operating income will grow…we expect year-over-year Fusilev sales to continue to grow." Thirteen days later, on March 12th, the Company lowered its annual revenue guidance to an estimated decline of -33% to -40%. You ended up delivering less than the bottom end of the range. Fusilev sales, which you said would grow, declined from $204 million in 2012 to $68 million in 2013, a decline of -67%.

In early 2013, you touted Zevalin's growth and said you expect sales of the drug to eventually reach $300 million. In 2014, sales of Zevalin were $22 million, a -25% decline from the previous year. Nine months ago you said you would out-license RenaZorb. More than two years ago you said you were planning its Phase II program. Nothing has happened. The apaziquone Phase III studies failed in 2012. Three years later you released the data. Upon re-acquiring the rights to apaziquone from Allergan, you announced you would submit a New Drug Application in 2013. More than two years later nothing has happened.

The list goes on and on. Trials are announced and never completed. Drugs like Ozarelix and SPI-1620 are highlighted and then never spoken of again. The recent patent litigation on Fusilev was mismanaged and immediately swept under the rug. The Company recently uploaded a new investor presentation in which there is no mention of SPPI's revenue, financial position, or commercial operations. These are the Company's most valuable assets. Your indifference puts their value at risk.

In the right hands, Spectrum could be transformed into an exciting, pure play specialty oncology company. Potential acquirers have greater access to capital, manufacturing / distributor synergies, tax advantaged corporate structures, demonstrated abilities to capture overhead synergies, track records of R&D success, and finally, investor trust. They give guidance, which Spectrum has not done since 2Q 2013; and most importantly, they execute against it.

Armistice is committed to affecting change at Spectrum. We encourage fellow shareholders to make their voices heard. We will not hesitate to nominate qualified directors to the SPPI board. And we are evaluating all options to ensure our requests are met.

For the avoidance of doubt, Armistice does not support a potential spin-off of the Company's development stage assets. Nor do we support the Company's commercial infrastructure being dismantled. We are steadfast in our belief that the Company needs to be sold immediately.

I welcome further discussion with you and the Board.


Steve Boyd
Managing Member

Letter From Activisit Shareholder Group to Aura Minerals

A group of minority shareholders have bought up 5.5% in Aura Minerals, pushing for an ousting of CEO James Bannantine and sell of the company. The group cites management and the board as the sole reason for the 93.7% decline in the Company's market value since October 18, 2011, when Bannantine was appointed CEO. Here's the letter:

June 1, 2015

Members of the Board of Directors of Aura Minerals Inc.

Patrick J. Mars 
Jim Bannantine 
Tom Ogryzlo 
Stephen Keith 
William Murray

Aura Minerals Inc. 
155 University Avenue, Suite 1240 
Toronto ON M5H 2B7

Dear Members of the Board of Directors:

We are writing on behalf of shareholders ("we" or the "minority shareholders") that own 12.5 million common shares of Aura Minerals Inc. ("Aura" or the "Company"), representing approximately 5.5% of the total shares outstanding.

As you know, we believe the capital allocation and general corporate strategy of Aura Minerals to be deeply flawed. Further, we do not believe that the incumbent management and Board are acting in a way that will result in value maximization for all shareholders. We provide the following as evidence:

  • Share price underperformance. James M. Bannantine was appointed President and CEO on October 18, 2011. Shortly thereafter, certain capital allocation decisions impacted the capital structure of the Company and Aura moved from a net cash to a net debt position by early 2012. Since Mr. Bannantine was appointed President and CEO, the equity value of Aura has declined by 93.7%. 
  • Poor capital allocation. Under Mr. Bannantine's leadership, beginning in the third quarter of January 2011, Aura has generated approximately US$145 million of free cash flow (defined as EBITDA less capital expenditures) from the Company's gold mines in Brazil and Honduras but incurred approximately US$100 million of negative free cash flow from its Aranzazu and Serrote development projects and US$50 million in cash G&A expenses. Had Aura simply retained the cash from its gold operations less G&A expenses, the Company would now have cash savings equal to approximately 4.6x the current market capitalization. 
  • Dilutive transactions. Despite forecasting to be free cash flow positive in 2015, Aura announced on May 28, 2015 that it had entered into a private placement agreement to issue an additional 25% of common shares at a price of C$0.107. The issue price represents roughly � of the value that we ascribe to Aura's principal asset. In a similar fashion, Aura has demonstrated a complete lack of concern for the value of its shares by issuing millions of warrants and options to Auramet, insiders and Yamana at exercise prices that are a fraction of intrinsic value. 
  • High G&A expenses. Aura claims that they are the victim of a weak commodity market that has been particularly harsh on junior mining companies. It is not immediately clear where that harsh environment is reflected in Aura's G&A expenses. With a corporate staff of approximately 10, Aura recorded 2014 expenses of US$6.3 million (2013:US$7.0 million) for salaries and wages plus US$2.3 million (2013:US$1.7 million) for professional and consulting fees plus US$3.0 million (2013:US$5.0 million) for a line-item simply described as "Other." Together, these corporate G&A expenses represent a cash outflow of US$11.6 million (2013:US$13.7 million), which is greater than 50.0% of the Company's equity value. 
  • Minimal insider ownership. Aura's Board collectively owns 1.9 million common shares representing approximately 0.8% of Aura with a current market value of C$171,000. Management contends that the corporate finance activities of Aura left them in an effectively continuous blackout period for the past two years. 
  • Poor disclosure. Paulo Carlos de Brito, a well-known name in the mining industry, controls Cyprus River Holdings Ltd., which owns 45.6 million common shares, representing approximately 19.9% of Aura. In December 2014, Sercor Ltd., believed to be an irrevocable trust affiliated with (but not controlled by) Mr. de Brito acquired 43.8 million common shares, representing 19.2% of Aura from an entity controlled by Yamana Mining Inc. As of the date of Aura's Information Circular, Sercor had increased its ownership to 45.6 million shares, representing 19.9% of Aura. Finally, Board member Stephen Keith is understood to be Mr. de Brito's representative on the Board. Yet nowhere is the name Paulo Carlos de Brito mentioned in Aura's public filings, nor are there any disclosed measures taken by the Board to ensure independence and good faith dealings for the benefit of all shareholders.  
  • Lack of credibility. In contrast to the name Paulo Carlos de Brito, the name James M. Bannantine is not as well-known. Other than Mr. Bannantine's ability to speak Spanish and Portuguese, and being a self-proclaimed former activist investor and private equity entrepreneur, his only long-tenured corporate affiliation is that he was a senior executive at Enron for 10 years. As outlined above, the share price performance under Mr. Bannantine's tutelage has been nearly as catastrophic as that of Enron. Further, he has alienated the Company from the investment community. Specifically, in Q3'11 there were six research analysts covering Aura Minerals, all with a "BUY" rating and an average price target of C$3.70 per share (representing C$840 million of equity value.) Today, there are zero analysts covering the Company, the market capitalization is approximately C$20 million and no actions are being taken to engage the investment community.

In spite of all the above, there is still tremendous value in Aura that is not reflected in the current share price. Using the mid-point of management's 2015 guidance, Aura should generate approximately US$50 million (C$62.25 million) of cash margin from operating gold assets. Aura is expected to be free cash flow positive in 2015, after US$12.8 million of capital expenditures, US$9 million of G&A expenses, and a US$3.0 million net smelter royalty payment.

The Company's debt obligations primarily consist of a gold loan that will be repaid with produced gold, and a loan related to the Serrote development project that is non-recourse to Aura's producing gold assets. Further, Aura has confirmed that it expects to have a net debt position of "almost nil by the end of the first quarter of 2016." We believe that this can be achieved at least a quarter earlier, even without the announced private placement.

For 2016 and beyond, the Company's value is primarily derived from its San Andres gold mine in Honduras, which has been in production since 1983 and has well-developed infrastructure and on-site camp facilities. San Andres is capable of producing an average of 80,000 ounces of gold per year for a minimum of eight (and management expects more than 10) years. At spot gold prices of US$1,200/oz, this represents US$24 million of cash margin, which management has said represents US$15 million of free cash flow per year. Beginning in 2016, this stream of cash flow would recur for eight to 10 years on an all-equity capital structure. We conservatively value this at US$75 million (C$94 million) which equals C$0.40 per share on the shares outstanding prior to the announced private placement. Moreover, incremental option value exists around the Company's Aranzazu, Serrote and Pau-a-Pique assets.

To assist management and the Board, we outlined a five-point strategic plan that we felt should be communicated to the market, which would result in the greatest long-term value for the benefit of all shareholders. The strategy summary, with brief details, is as follows:

1. Manage Costs Vigilantly.

  • Target and be held accountable to reduce G&A from US$13.1 million in 2014 to US$9 million, as per management guidance 
  • Cease all spending on feasibility studies for Aranzazu and Serrote 

2. To Pay Down Debt. 

  • Formalize the year end net debt target of less than US$10 million based on current commodity prices; try to beat that target 

3. With a Commitment to Repurchase Common Shares.

  • Aura must confirm that it will no longer allocate capital to feasibility studies until the share price reflects the intrinsic value of San Andres 
  • Commit to buying back shares as long as that capital allocation decision yields the highest risk-adjusted return  

4. So as to Regain Credibility - and Engage Investors and Equity Research Analysts.

  • Aura has lost credibility in the past by missing announced deadlines on feasibility studies and corporate financings / joint ventures. By regaining control of the capital structure and equity value, Aura will be better positioned to deliver on milestones in a timely fashion  

5. With Prospects of Future Upside Based on Feasibility Studies, Future Asset Monetizations and Return or Redeployment of Capital for the Benefit of All Shareholders.  

The press release issued by Aura on May 28, 2015 confirmed all the fears and grievances we had previously expressed to the Board and management. Rather than follow a sound capital allocation strategy based on low risk activities and creating value for shareholders, the Company announced a private placement resulting in the issuance of 25% more shares at a price equal to � the standalone value of San Andres and a continuation of the high-risk and reckless capital allocation that has significantly contributed to the 93.7% decline in Aura's equity value.

Under the incumbent Board and management, Aura has shirked accountability to minority shareholders and failed in its fiduciary obligations of duty and care. As such, we are calling on you to take immediate actions to maximize the value for all shareholders. Specifically, we believe that the resignation of the President and CEO, James M. Bannantine, is warranted, and that an orderly sale process of the Company should be initiated expeditiously. 


Timothy J. Stabosz (on behalf of minority shareholders) 
T: 219-363-7485