CHAPTER 04 Shareholder Activism Abates, but Not for Long: Significant Activity and Developments in 2020
Our Take (Cont'd)
4 Standstill provision. One of the most standstill provision specifies a period during which the shareholder agrees to refrain from certain activities designed to influence the control or policies of the issuer. And while standstills are more common than not in settlement agreements, we have seen several cases in recent years involving “brand name” activists with a record of success, where a negotiated outcome was achieved by the parties without any standstill. Standstill provisions often include prohibitions on (i) soliciting proxies or seeking to influence or control the issuer or its policies; (ii) seeking to elect candidates to the issuer’s board; (iii) acting jointly or in concert with another shareholder with respect to the issuer’s securities; (iv) commencing a takeover bid or effecting or important concessions an activist shareholder can make is agreeing to a standstill. A participating in an extraordinary transaction involving the issuer; (v) putting forward a shareholder proposal; (vi) requisitioning a shareholders’ meeting of the issuer; or (vii) making public statements concerning any of the foregoing. They also typically release the investor from its obligations upon the occurrence of certain events – known as a “spring,” such as upon the issuer approving or announcing a change of control transaction. In exchange for the standstill, the issuer may agree to take certain steps that would align the governance of the issuer with the shareholder’s objectives, such
as adding the shareholder’s director nominees to the issuer’s board or making other changes to the board’s composition. The issuer may also agree to take certain corporate or operational actions, such as replacing the CEO, commencing a share buyback program, paying out dividends or striking a committee to explore the sale of the issuer or a portion of the issuer’s assets. A standstill may also include share ownership restrictions that prohibit a dissident shareholder from trading in the issuer’s securities. These restrictions can be structured creatively in order to align the dissident’s interests with the issuer and its broader shareholder base. For example, a standstill may require the shareholder to own at least 5% of the issuer’s securities in order to maintain its nomination right. It may also prohibit the shareholder from acquiring more than 9.9% of the issuer’s securities, thereby preventing the shareholder from obtaining too large and influential an equity stake. 5 Voting obligations. A settlement agreement that contemplates the appointment of a shareholder’s director nominees typically includes a provision requiring the issuer to support the election of those nominees at the issuer’s annual shareholders’ meetings in a manner no less rigorous and favourable than the manner in which the issuer supports its other nominees. In exchange, the shareholder will typically agree to also support
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Davies | dwpv.com
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