Activist Shareholder Settlement Agreement

Worse, some companies have asked members of the activist board to sign and deliver in advance the resignations of directors, which are automatically triggered when the board of directors decides that the representative has violated the settlement agreement, which often involves a long litany of board provisions and policies to which the representative must comply. Board guidelines are important and all directors should be required to follow them, but having a director who is at risk of being automatically removed from the board of directors because it could be a minor violation of a trivial administrative policy is a terrible affront to good corporate governance. It seems that the company is trying to keep the new director on a leash – and makes sure the director is afraid of being too noisy and independent in the meeting room. This problem is even more monstrous when the company tries to require the new director to promote collegiality or any other decorating standard of the board of directors to avoid the threat of distance. Prior resignations also create a potential risk of uncertainty as to who is actually a member of the Board of Directors at some point in the event of a dispute over whether a resignation has been triggered, which could result in a huge disruption to the effective functioning of the Board of Directors. In order to prevent the withdrawal of its candidates from the board of directors or any other reduction in their mandates, the activist shareholder may require that the company agree not to convene special shareholder meetings to remove one of the candidates from the activist shareholder or take measures that would have the effect of restricting the conditions of these candidates. The activist shareholder may also want the transaction agreement to provide that the company and the board of directors recommend against any proposal or request for approval that may result in removing or reducing the mandate of one of the nominees of the activist who served as director, and that the company will make the best appropriate efforts to recruit voting representatives against such an action. Too often, companies negotiating transaction agreements underestimate the disruption these new directors can cause. Comparison agreements generally do not limit the ability of activist designers to push a board in directions they would not otherwise do. Activists can ask for large amounts of information. In many legal systems, a director`s ability to reject these applications is limited.

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