Activist Investor Settlement Agreements: Negotiating Points

Transcription

1 Activist Investor Settlement Agreements: Negotiating Points Andrew J. Noreuil Partner (312) May 12, 2016 Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC ); Mayer Brown, a SELAS established in France; Mayer Brown Mexico, S.C., a sociedad civil formed under the laws of the State of Durango, Mexico; Mayer Brown JSM, a Hong Kong partnership and its associated legal practices in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. Mayer Brown Consulting (Singapore) Pte. Ltd and its subsidiary, which are affiliated with Mayer Brown, provide customs and trade advisory and consultancy services, not legal services. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

2 Negotiation of an activist investor settlement agreement generally centers around the following substantive points: Composition of and representation on the board of directors Corporate governance changes Activist investor standstill Reimbursement of the activist investor s costs and expenses Ancillary provisions 2

3 Composition of and Representation on the Board of Directors Number of new appointees/nominees Depends on facts and circumstances, but typically between 1 to 3 Affiliations of new appointees/nominees: independent or affiliated? Affiliated nominees are commonly subject to additional restrictions, such as mandatory resignation when activist s ownership dips below certain threshold and the activist typically signs a confidentiality agreement Committee membership for new appointees/nominees Right to replace directors and criteria and procedures for replacing them (e.g., minimum ownership) 3

4 Corporate Governance Changes Activist investors may propose certain changes to the company s internal governance and policies, including: Placing restrictions on board size and membership Replacing the CEO Removing or changing poison pill Eliminate staggered board Disbanding, restructuring or forming new board committees 4

5 Standstill Settlement agreements generally include prohibitions on the activist investor s ability to: Acquire, sell or otherwise transfer company shares, subject to certain floors, caps and ordinary course transfers (e.g., open market sales, transfers to controlled affiliates) Seek additional board representation Submit or encourage submission of stockholder proposals Solicit or participate in the solicitation of proxies in opposition to the board Seek, encourage or propose extraordinary transactions involving the company (e.g., merger or sale of all or substantially all assets) Seek or participate in any effort to control or influence management Call a special meeting 5

6 Reimbursement of Activist Investor s Costs and Expenses In most cases, settlement agreements provide that the company will reimburse the activist investor for their costs and expenses incurred in connection with their activist campaign Such reimbursements generally include costs and expenses incurred in connection with proxy contests that are threatened or in process, negotiating and executing the settlement agreement and preparing and filing the Schedule 13D and any amendments thereto Most companies negotiate a cap on such reimbursement but the amount largely depends on the facts and circumstances of each activist campaign Recent settlement agreements have typically provided caps ranging from $10,000 to the hundreds of thousands of dollars 6

7 Ancillary provisions Mutual Non-disparagement Typically runs until the earlier of the expiration of the standstill and breach of non-disparagement covenant by one party Representations and warranties of the parties Activist makes representation as to what equity it owns Press release announcing settlement 7

8 Activist Investor Settlement Agreements: Negotiating Points Andrew J. Noreuil Partner (312) May 12, 2016 Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC ); Mayer Brown, a SELAS established in France; Mayer Brown Mexico, S.C., a sociedad civil formed under the laws of the State of Durango, Mexico; Mayer Brown JSM, a Hong Kong partnership and its associated legal practices in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. Mayer Brown Consulting (Singapore) Pte. Ltd and its subsidiary, which are affiliated with Mayer Brown, provide customs and trade advisory and consultancy services, not legal services. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.