8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 8-K

Current Report

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):  August 24, 2007

DEPOMED, INC.

(Exact name of registrant as specified in its charter)

001-13111
(Commission File Number)
California	94-3229046
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation)
1360 O’Brien Drive, Menlo Park, California 94025
(Address of principal executive offices, with zip code)
(650) 462-5900
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o    Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o    Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o    Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o    Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01  Entry into a Material Definitive Agreement

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers

Retirement of John W. Fara, Ph.D.

Effective August 27, 2007, John W. Fara, Ph.D. retired from his positions as President, Chief Executive Officer and Chairman of Depomed, Inc. (the “Company”).  Dr. Fara will continue to serve as a member of the Company’s Board of Directors (the “Board”).

On August 24, 2007, the Company entered into a Consulting Agreement with Dr. Fara, which is attached as Exhibit 10.1 to this Report.  Pursuant to the agreement, Dr. Fara will provide consulting services to the Company through December 31, 2009.  Through December 31, 2008, the Company will pay Dr. Fara $20,833 per month for his consulting services, and will reimburse Dr. Fara for COBRA and life insurance premiums.  Dr. Fara will be paid on an hourly basis for consulting services provided in 2009.

During the period of his consultancy, Dr. Fara will continue to vest in all of his currently unvested stock options, and his vested stock options will remain exercisable.  In the event of a “Change in Control” of the Company (as defined in the Company’s 2004 Equity Incentive Plan), all of Dr. Fara’s unvested options will fully vest, and any remaining monthly payments (i.e., payments for services provided through December 31, 2008) for consulting under the agreement will be accelerated.

Appointment of Carl A. Pelzel as President, Chief Executive Officer and Director

On August 24, 2007, the Company entered into a letter agreement (the “Letter Agreement”) with Carl A. Pelzel pursuant to which Mr. Pelzel has agreed to serve as the Company’s President and Chief Executive Officer and as a member of the Board, effective August 27, 2007.

Mr. Pelzel has served as the Company’s Executive Vice President and Chief Operating Officer since September 2005, and served as the Company’s Vice President, Marketing and Commercial Development between June 2005 and September 2005.  Before joining the Company, Mr. Pelzel was Senior Vice President, Global Commercial Operations at Chiron Corporation from June 2003 to September 2004. Prior to joining Chiron, Mr. Pelzel was President and Chief Executive Officer of Invenux Inc., a privately-held biopharmaceutical company from March 2001 to November 2002. Mr. Pelzel also spent 11 years with GlaxoSmithKline in senior-level sales, marketing and international operational positions, including Country Manager of Hong Kong and China. He spent 13 years with American Home Products, focused primarily on their antibiotics business. During his career, he directed the launch of five major pharmaceutical products, many on a global basis. Mr. Pelzel has a B.A. degree from Hartwick College of Oneonta, New York.

The Letter Agreement provides for Mr. Pelzel to receive an annual base salary of $400,000, and, in accordance with the Company’s Bonus Plan, an annual target cash bonus of 50% of his base salary for the period beginning on August 27, 2007.  Accordingly, Mr. Pelzel’s cash bonus for 2007 will be determined as follows:  (a) for the period beginning on January 1, 2007 and ending on August 26, 2007, the bonus target will be 40% of Mr. Pelzel’s pay for that period, based on corporate goals and personal goals associated with his service as Executive Vice President and

Chief Operating Officer during that time; and (b) for the period beginning on August 27, 2007 and ending on December 31, 2007, Mr. Pelzel’s bonus target will be 50% of his pay for that period, based on corporate goals and personal goals established by the Compensation Committee that are associated with his service as President and CEO.  A copy of the Company’s Bonus Plan is attached as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 12, 2006.

As contemplated by the Letter Agreement, on August 24, 2007, the Compensation Committee of the Board (the “Compensation Committee”) granted to Mr. Pelzel the following stock options under the Company’s 2004 Equity Incentive Plan:  (a) an option to purchase 400,000 shares of Common Stock with an exercise price equal to $1.98, the closing sale price of the Common Stock on the Nasdaq Global Market on August 24, 2007 (the “August 24, 2007 Closing Price”) that vests in equal monthly installments over four years, such that the option will be fully vested and exercisable on August 24, 2011; and (b) an option to purchase 37,500 shares of Common Stock with an exercise price equal to the August 24, 2007 Closing Price that vests upon the earlier to occur of (x) the achievement of one or more objective performance conditions to be determined (the “Performance Milestone”), and (y) August 24, 2011.

The Letter Agreement also provides for the grant to Mr. Pelzel, as soon as reasonably practicable after January 1, 2008, and in no event later than March 31, 2008, of a nonstatutory option to purchase 62,500 shares of Common Stock with an exercise price equal to the August 24, 2007 Closing Price that vests upon the earlier to occur of (x) the achievement of the Performance Milestone, and (y) August 24, 2011.

Each of the above-described options will be subject to the terms and conditions set forth in the Company’s 2004 Equity Incentive Plan and the Management Continuity Agreement between Mr. Pelzel and the Company dated as of June 1, 2006 (as amended, the “Management Continuity Agreement”).

As contemplated by the Letter Agreement, on August 24, 2007, the Company and Mr. Pelzel amended the Management Continuity Agreement to (a) increase, from 18 months to 24 months, the post-termination severance period during which Mr. Pelzel is eligible to receive continued payments of his base salary and COBRA benefits; and (b) modify the amount of the lump sum payment Mr. Pelzel is eligible to receive in respect of his pre-termination average annual bonus so that it is two times his average annual bonus determined under the agreement, and is based on bonuses paid to Mr. Pelzel in his capacity as President and CEO.  A copy of the amendment to the Management Continuity Agreement is attached hereto as Exhibit 10.3.  A copy of the form of Management Continuity Agreement between the Company and the officers of the Company, including Mr. Pelzel, is attached as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 19, 2006.

Mr. Pelzel will receive no additional compensation in connection with his service as a Director.

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Item 8.01  Other Events

Appointment of Craig R. Smith, M.D. as Chairman

Effective August 27, 2007, the Company’s Board of Directors appointed Craig R. Smith, M.D. to serve as Chairman of the Board.  Dr. Smith has been a member of the Board since 2004 and served as the Board’s Lead Independent Director from December 2006 until his appointment as Chairman.  With Dr. Smith’s appointment as Chairman, the Board has eliminated the position of Lead Independent Director.

Non-employee Director Cash Compensation Policy

Effective August 27, 2007, the Company revised its cash compensation policy for non-employee members of the Board. Under the revised policy, if the Chairman of the Board is an independent director, he will receive an additional annual cash retainer of $20,000, which is payable quarterly.

Item 9.01 Financial Statements and Exhibits

(d)   Exhibits

10.1	Consulting Agreement, dated as of August 24, 2007, between Depomed, Inc. and John W. Fara, Ph.D.
10.2	Letter Agreement, dated as of August 24, 2007, between Depomed, Inc. and Carl A. Pelzel
10.3	Amendment No. 1 to Management Continuity Agreement between Depomed, Inc. and Carl A. Pelzel, dated as of August 24, 2007

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	DEPOMED, INC.
Date: August 27, 2007	By:	/s/ Matthew M. Gosling
		Matthew M. Gosling
		Vice President and General Counsel

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EX-10.1

Exhibit 10.1

CONSULTING AGREEMENT

THIS CONSULTING AGREEMENT (the “Agreement”) is made and entered into this 24th day of August, 2007, between Depomed, Inc., a California corporation (the “Company”) and John W. Fara, Ph.D. (“CONSULTANT”).

THE PARTIES AGREE AS FOLLOWS:

1.             Consultancy.  CONSULTANT shall serve as a Consultant to the Company for a period commencing on the date of this Agreement and concluding on the date set forth in Schedule A hereto.  The period during which CONSULTANT shall serve as a Consultant to the Company pursuant to this Agreement shall constitute the “Consulting Period”.

2.             Duties.  CONSULTANT shall serve as a consultant to the Company in the activities of the Company set forth in Schedule A, or as otherwise requested by the chief executive officer of the Company.  In the performance of such duties, CONSULTANT shall consult with the Company up to the number of hours per month set forth at Schedule A, which consulting will take place at such places and at such times as the Company and CONSULTANT mutually agree.

3.             Compensation; Stock Options; Change in Control.

3.1.          Compensation.  Subject to the provisions of Section 4.3 below, the Company agrees to pay CONSULTANT, and CONSULTANT agrees to accept for CONSULTANT’s services under this Agreement, consulting fees (the “Consulting Fees”) as set forth in Schedule A.  Through December 31, 2008, CONSULTANT will not be entitled to any additional cash compensation for his service as a member of the Company’s Board of Directors while he is receiving fees pursuant to this Agreement.

3.2.          Stock Options.  The parties acknowledge that, subject to the provisions of Section 4.3 below, any stock options to purchase the common stock of the Company (“Company Options”) held by CONSULTANT will continue to vest during the Consulting Period in accordance with the terms of such Company Options.

3.3.          Change in Control.  In the event that a Change in Control (as defined below) occurs during the Consulting Period:  (a) 100% of CONSULTANT’s unvested options to purchase shares shall become immediately vested on the date of such Change in Control; and (b) CONSULTANT shall receive, on the date the Change in Control occurs and in lieu of any further monthly payments set forth in Schedule A, a lump sum payment equal to the remainder of (x) $340,000, minus (y) the sum of all payments received under this Agreement by CONSULTANT prior to the date of the Change in Control (if such remainder is a positive number).  For purposes

of this Agreement, “Change in Control” shall mean any event so determined by the Company’s Board of Directors pursuant to Section 10.4 of the Company’s 2004 Equity Incentive Plan.

3.4.          COBRA.  Through December 31, 2008, the Company shall continue to pay (or reimburse Consultant for) its portion of the health insurance benefits provided to CONSULTANT immediately prior to the commencement of the Consulting Period pursuant to the terms of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) or other applicable law through the earlier of the end of the Consulting Period, or the date upon which CONSULTANT is no longer eligible for such COBRA or other benefits under applicable law.

3.5.          Insurance.  Through December 31, 2008, the Company will reimburse CONSULTANT for premiums paid by CONSULTANT in respect of a life insurance policy comparable to the life insurance policy provided to CONSULTANT prior to his retirement from the Company, with a coverage amount of up to $550,000.

4.             Other Employment.

4.1.          Other Affiliation.  CONSULTANT represents that he is not a party to any existing agreement that would prevent him from entering into this Agreement, and that CONSULTANT is not a party to any agreement with third parties which may restrict his consulting activities on behalf of the Company or obligate CONSULTANT to assign inventions. The Company understands and agrees that during the Consulting Period CONSULTANT may be retained by other companies, corporations, and/or commercial enterprises which are not engaged in the design, development, manufacture, or marketing of products in the area of the Company’s business or field of interest.  CONSULTANT agrees to inform the Company of any such agreement immediately.  CONSULTANT agrees to use his best efforts to segregate work done under this Agreement from all work done at, or for, any such company, corporation, and/or other commercial enterprise.  In any dealings with any such company, corporation, and/or other commercial enterprise, CONSULTANT shall protect and guard the Company Confidential Information in accordance with the terms of this Agreement.

4.2.          Conflict of Interest.  CONSULTANT warrants that he is not obligated under any other consulting, employment, or other agreement which would affect the Company’s rights or CONSULTANT’s duties under this Agreement other than those referred to in Section 4.1.

5.             Confidentiality.

5.1.          Protection of Information and Scientific Publications.  CONSULTANT shall hold all the Company Confidential Information (as defined below) in confidence and shall not disclose Confidential Information to any unauthorized person.  Except as required in his duties for the Company, CONSULTANT will never directly or indirectly use, disseminate, disclose, lecture upon, or publish articles concerning, Confidential Information or remove Confidential Information from the Company’s premises.

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5.2.          Records.  CONSULTANT agrees to keep separate and segregated from other work all documents, records, notebooks and correspondence which directly relate to his work under this Agreement.

5.3.          Company Property.  All notes, memoranda, reports, drawings, manuals, materials, files, samples, products, data, and any papers or records of every kind which are or shall come into CONSULTANT’s possession at any time during the Consulting Period related to the business of the Company shall be the sole and exclusive property of the Company, whether or not such items are Confidential Information.  This property shall be surrendered to the Company upon termination of the Consulting Period or upon request of the Company at any time either during or after the termination of the Consulting Period, and no copies, notes, or excerpts thereof shall be retained.

5.4.          Information of Others.  CONSULTANT will safeguard and keep confidential the proprietary information of customers, vendors, consultants, and other parties with which the Company does business to the same extent as if it were Company Confidential Information.  CONSULTANT will not, during his consulting with the Company or otherwise, use or disclose to the Company any confidential, trade secret, or other proprietary information or material of any previous employer or other person, and will not bring onto the Company’s premises any unpublished document or any other property belonging to any former employer without the written consent of that former employer.

5.5.          Computers; Telephone Line.  During the Consulting Period, CONSULTANT will continue to have access to Company computers in his possession, and to his current home office telephone service, for the provision of consulting services under this Agreement.

6.             Inventions.

6.1.          Company Property.  All Inventions (as defined below) made, conceived, or completed by CONSULTANT, individually or in conjunction with others, resulting from work or consulting services performed by CONSULTANT on behalf of the Company or from access to the Company Confidential Information or property, whether or not patentable, copyrightable, or qualified for mask work protection, shall be the sole and exclusive property of the Company and to the extent permitted by law shall be “works made for hire.”  CONSULTANT hereby assigns and agrees to assign to the Company or its designee, without further consideration, his entire right, title, and interest in and to all Inventions, other than those protected by Section 2870 of the California Labor Code, including all rights to obtain, register, perfect, and enforce patents, copyrights, mask work rights, and other intellectual property protection for Inventions.

6.2.          Technical Information, Copyrights, Patents.  CONSULTANT shall, without royalty or any other further consideration to CONSULTANT therefore, but at the expense of the Company:

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6.2.1.       Disclosure.  As promptly as known or possessed by CONSULTANT, disclose to the Company all information with respect to any Inventions whether or not such Invention qualifies under Section 2870 of the California Labor Code.

6.2.2.       Copyright and Patent Applications.  Whenever requested to do so by the Company, promptly execute and assign any and all applications, assignments and other instruments which the Company shall deem necessary to apply for and obtain copyrights, letters patent, or mask work rights in the United States and in foreign countries, for all Inventions, and convey to the Company or to the Company’s nominee the sole and exclusive right, title and interest in and to said Inventions or copyrights, mask work rights, patents, or applications for any of the foregoing.

6.2.3.       Legal Proceedings.  Whenever requested to do so by the Company, deliver to the Company evidence for interference purposes or other legal proceedings and testify in any administrative or other legal proceedings which relates to any matters on which CONSULTANT has provided services to the Company.

6.3.          Excluded Inventions.  Nothing contained in this Agreement shall affect the rights or obligations of CONSULTANT with respect to any Inventions protected by Section 2870 of the California Labor Code.  Attached as Schedule B is a list of all inventions, improvements, and original works of authorship related to the Company’s business that are excluded from this Agreement.

7.             Termination.  The Consulting Period may be terminated by the Consultant upon 30 days’ written notice to the Company.  The Consulting Period may not be terminated by the Company.

8.             Survival of Certain Agreements.  The covenants and agreements set forth in paragraphs 3, 5 and 6 shall survive the Consulting Period and remain in full force and effect regardless of such termination and payment shall continue for the original term of the Agreement.

9.             Notice.  Any notice to be delivered pursuant to this Agreement shall be in writing and shall be deemed delivered upon service, if served personally, or three days after deposit in the United States Mail, if mailed by first class mail, postage prepaid, registered or certified with return receipt requested, and addressed to the other party at the following address, or such address as may be designated in accordance herewith:

To the Company:	Depomed, Inc.
	1360 O’Brien Drive
	Menlo Park, CA    94025
	Attention: President
To CONSULTANT:	at the address set forth at Schedule A

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10.           Binding Effect.  This Agreement shall be binding upon CONSULTANT, and, except as regards personal services, upon CONSULTANT’s heirs, personal representatives, executors and administrators, and shall inure to the benefit of the Company, its successors and assigns.

11.           Enforcement.  If any provision of this Agreement is determined to be invalid or unenforceable, the remainder of this Agreement shall be valid and enforceable to the maximum extent possible.

12.           Amendment.  This Amendment may be modified or amended only by mutual written consent of the parties.

13.           Governing Law.  This Agreement shall be governed by, and construed in accordance with, the laws of the State of California excluding those laws that direct the application of the laws of another jurisdiction.

14.           Counterparts.  This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Agreement.

15.           Entire Agreement.  This instrument contains the entire agreement of the parties relating to the subject matter hereof, and supersedes all prior and contemporaneous negotiations, correspondence, understandings and agreements of the parties relating to the subject matter hereof.

16.           Successors.  Any successor to the Company (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assets shall assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession.  The terms of this Agreement and all of CONSULTANT’s rights hereunder shall inure to the benefit of, and be enforceable by, CONSULTANT’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.

17.           Definitions.  For the purposes of this Agreement:

17.1.        “Confidential Information” shall mean information disclosed to CONSULTANT as a consequence of or through performance of services for the Company, its subsidiaries or affiliates, whether or not related to his specific work at the Company.  Confidential Information includes all information related to any aspect of the Company’s business which is either information not known by actual or potential competitors of the Company or is proprietary information of the Company, whether of a technical nature or otherwise.  Confidential Information includes Inventions (as defined in Section 17.2), know-how, data, financial information and forecasts, product plans, marketing plans and strategies, and customer lists.  Information shall be considered, for purposes of this Agreement, to be Confidential Information if not known by the trade generally, even though such information has

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been disclosed to one or more third parties pursuant to distribution agreements, joint research agreements or agreements entered into by the Company or any of its affiliates.  For the purposes of this Agreement, information shall not be considered confidential to the extent that such information is or becomes, through no fault of CONSULTANT, part of the public domain, or such information is lawfully furnished to CONSULTANT by a third party without restriction or disclosure.

17.2.        “Inventions” shall mean any and all inventions, concepts, ideas, designs, circuits, schematics, formulas, algorithms, trade secrets, works of authorship, mask works, developmental or experimental work, processes, techniques, and improvements.

IN WITNESS WHEREOF, the parties have executed this Consulting Agreement as of the date first above written.

CONSULTANT:	DEPOMED, INC.
/s/ John W. Fara, Ph.D.	By:	/s/ Matthew M. Gosling
John W. Fara, Ph.D.		Matthew M. Gosling
		Vice President and General Counsel

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SCHEDULE A

to Consulting Agreement

1.Name of Consultant:            John W. Fara, Ph.D.

2.Address of Consultant for Notice:

3.Term of Consulting Period:  August 28, 2007 – December 31, 2009.

4.Duties of Consultant:          To consult in areas associated with the Company’s business (including without limitation product development, business development and investor relations) as requested by the Company’s chief executive officer then in office.

5.Number of Hours of Consulting to be Performed Per Month:  Not more than 20 hours per month, unless agreed by Consultant.

6.Consulting Fees:  $20,833.33 per month (or $1,042 per business day for any partial month), which amount shall be paid irrespective of the number of hours of consulting services per month performed by Consultant for the period ending on December 31, 2008, and at the rate of $300 per hour for the period January 1, 2009 through December 31, 2009 for consultancy approved in writing in advance.

Initialed By:

CONSULTANT:  JWF

Depomed: MMG

SCHEDULE B

to Consulting Agreement

(Excluded Inventions, Improvements, and

Original Works of Authorship)

		Identifying Number
Title	Date	or Brief Description
(None)

EX-10.2

Exhibit 10.2

August 24, 2007

Mr. Carl Pelzel

Dear Carl:

On behalf of the Board of Directors, I am very pleased to extend to you this offer to become Depomed’s President and Chief Executive Officer, and a member of Depomed’s Board of Directors, effective on Monday, August 27, 2007.

Your initial rate of pay as President and CEO will be $400,000 per year.  Your salary will be reviewed periodically consistent with the company’s compensation policies.  You will receive no additional compensation for your service as a Director.

In connection with your appointment as President and Chief Executive Officer, the Compensation Committee of the Board of Directors has approved, effective upon your acceptance of this offer, the grant to you of the following stock options under the company’s 2004 Equity Incentive Plan:  (a) an option to purchase 400,000 shares of common stock with an exercise price equal to today’s closing sale price of the common stock on the Nasdaq Global Market (the “August 24, 2007 Closing Price”) that vests in equal monthly installments over four years, such that the option will be fully vested and exercisable on August 24, 2011; and (b) an option to purchase 37,500 shares of common stock with an exercise price equal to the August 24, 2007 Closing Price that vests upon the earlier to occur of (x) the achievement of one or more objective performance conditions related to the Company’s 2008 performance, which conditions will be developed by the Compensation Committee in consultation with you not later than December 31, 2007 (the “Performance Milestone”), and (y) August 24, 2011.  In addition, provided that your service as the Company’s President and CEO continues through December 31, 2007, as soon as reasonably practicable after January 1, 2008, and in no event later than March 31, 2008, the Compensation Committee of the Board of Directors will grant to you a nonstatutory option to purchase 62,500 shares of common stock with an exercise price equal to the August 24, 2007 Closing Price that vests upon the earlier to occur of (x) the achievement of the Performance Milestone, and (y) August 24, 2011.  Each of the options will be subject to the terms and conditions set forth in the Company’s 2004 Equity Incentive Plan and the Management Continuity Agreement between you and Depomed dated as of June 1, 2006 (as may be amended, the “Management Continuity Agreement”).

You will continue to be entitled to participate in Depomed’s Bonus Plan, with a bonus target of 50% of your pay from and after your appointment as President and CEO, subject to the achievement of corporate and personal goals.  Accordingly, your cash bonus for 2007 will be determined as follows:  (a) for the period beginning on January 1, 2007 and ending on August 26, 2007, your bonus target will be 40% of your pay for that period, based on corporate goals

and personal goals associated with your service as Executive Vice President and Chief Operating Officer during that time; and (b) for the period beginning on August 27, 2007 and ending on December 31, 2007, your bonus target will be 50% of your pay for that period, based on corporate goals and personal goals established by the Compensation Committee that are associated with your service as President and CEO.

In addition, Section 2(b) of your Management Continuity Agreement will be amended to increase the post-termination severance period during which you are eligible to receive continued payments of your base salary and COBRA benefits, and to increase the lump sum payment you are eligible to receive in respect of your pre-termination annual bonus, each as set forth in the amendment to the Management Continuity Agreement presented to you along with this letter.

You will continue to participate in the company’s complete benefits package.

This offer will expire at 5:00 p.m. local time on August 24, 2007.  If you elect to accept this offer, please sign and return one copy of this letter to me by fax.

On behalf of the Board of Directors,
/s/ Julian N. Stern
Julian N. Stern
	This letter correctly sets forth our agreement:
	/s/ Carl A. Pelzel
	Carl A. Pelzel
	Date: August 24, 2007

EX-10.3

Exhibit 10.3

AMENDMENT NO. 1 TO MANAGEMENT CONTINUITY AGREEMENT

THIS AMENDMENT NO. 1 TO MANAGEMENT CONTINUITY AGREEMENT (the “Amendment”) is made and entered into as of August 24, 2007 by and between Depomed, Inc., a California corporation (the “Company”), and Carl A. Pelzel (“Employee”).

BACKGROUND

A.            Employee and the Company are parties to a Management Continuity Agreement, dated as of June 1, 2006 (the “Agreement”).  Capitalized terms used herein without definition have the meanings given them in the Agreement.

B.            Employee and the Company desire to amend the Agreement as set forth herein.

AGREEMENT

For good and valuable consideration, the receipt of which is acknowledged, the parties agree as follows:

1.             Amendment.  Section 2(b) of the Agreement is hereby amended to read in its entirety as follows:

“(b) Severance. In the event that Employee suffers an Involuntary Termination at any time within twelve months following the effective date of a Change of Control, Employee will be entitled to receive severance benefits as follows:  (A) severance payments during the period from the date of Employee’s termination until the date 24 months after the effective date of the termination (the “Severance Period”) equal to the base salary which Employee was receiving immediately prior to the Change of Control, which payments shall be paid during the Severance Period in accordance with the Company’s standard payroll practices, (B) a lump sum payment as soon as practicable after the date of termination of employment equal to two times the Bonus Amount (as defined below); and (C) continuation of payment by the Company of its portion of the health insurance benefits provided to Employee immediately prior to the Change of Control pursuant to the terms of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) or other applicable law through the earlier of the end of the Severance Period or the date upon which Employee is no longer eligible for such COBRA or other benefits under applicable law. In addition, Employee will receive payment(s) for all salary, bonuses and unpaid vacation accrued as of the date of Employee’s termination of

employment.  For purposes of this Agreement, “Bonus Amount” means Employee’s average annual bonus paid for the Company’s fiscal years (up to three) immediately preceding the Company’s fiscal year in which the termination occurs; provided, however, that (x) only annual bonuses paid to Employee in his capacity as Chief Executive Officer of the Company shall be taken into account for purposes of determining such average annual bonus, (y) any bonus for a partial year shall be prorated for purposes of the determining such average annual bonus (for example, if Employee’s bonus for the last four months of 2007 is $65,000, and his bonus for 2008 is $150,000, the Bonus Amount will be equal to $161,290, which is the quotient of (A) $215,000, divided by (B) 1.333); and (z) if the effective date of a Change of Control occurs prior to the payment to Employee of a bonus for 2007 related to his service as President and CEO in 2007, then the Bonus Amount shall be determined in good faith by the Compensation Committee of the Board of Directors, taking into account the methodology set forth above.”

2.             No Other Amendment.  Except as expressly amended by this Amendment, all other provisions of the Agreement remain in full force and effect.

3.             Effective Date.  The effective date of this Amendment shall be August 27, 2007.

4.             Counterparts.  This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Agreement.

IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 to Management Continuity Agreement as of the date first above written.

EMPLOYEE	DEPOMED, INC.
/s/ Carl A. Pelzel	By:	/s/ Matthew M. Gosling
Carl A. Pelzel		Matthew M. Gosling
		Vice President and General Counsel

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