The Real Deal Webinar Series: Recent Trends and Legal Developments You Should Consider in 2015 - Part II

© 2015 Winston & Strawn LLP
Recent Trends and Legal Developments You
Should Consider in 2015: Part II – Securities
& Corporate Governance
February 24, 2015

Today’s Speakers
Christina Roupas Karen A. Weber
Partner, Securities/
Corporate Governance
Chicago
+1 (312) 558-8794
kweber@winston.com
Associate, Securities/
Chicago
+1 (312) 558-3722
croupas@winston.com

Agenda
• Recent Trends in Shareholder Proposals
• Recent Changes in Debt Tender Offer Rules
• Litigation-Related Bylaws
• Public Companies and Social Media
• Investors Activism Update
3

Recent Trends in Shareholder Proposals

Recent Trends in Shareholder Proposals -
Background
• Rule 14a-8 under the Securities and Exchange Act of 1934, as amended, allows
shareholders to include proposals in a company’s proxy statement
• Adopted in 1942 to allow shareholders to have a voice in the major policy decisions
of companies in which they have made an equity investment
• Process
• Proposal received not less than 120 calendar days before the date on which the company
released its definitive proxy statement in the prior year
• Proposal and supporting statement must be less than 500 words
• Eligibility:
• At least 1% or $2,000 in the company’s securities for at least one year
• Intent to hold such securities through the date of the shareholders’ meeting
• Only one proposal per meeting per shareholder
• Defect Notice
• Company must provide written notice of defect within 14 calendar days of receipt and provide 14 calendar
days to cure
5

Recent Trends in Shareholder Proposals -
Background
Bases for Exclusions
• Improper under State Law - 14a-8)(i)(1)
• Requires legal opinion
• Violation of Law - 14a-8(i)(2)
• Requires legal opinion
• Violation of the Proxy Rules - 14a-8(i)(3)
• False and misleading statements under Rule
14a-9
• Personal Claim or Grievance – 14a-8(i)(4)
• Relevance – 14a-8(i)(5)
• Less than 5% of total assets and less than 5%
of net earnings and gross sales and not
otherwise significantly related to business
6
• Absence of Power or Authority – 14a-
8(i)(6)
• Ordinary Business – 14a-8(i)(7)
• Election to Office – 14a-8(i)(8)
• No exclusion for proxy access
• Counterproposal – 14a-8(i)(9)
• Conflicts with company’s proposal
• Substantially Implemented – 14a-8(i)(10)
• Substantially Duplicative – 14a-8(i)(11)
• Duplicates another shareholder proposal
• Resubmissions – 14a-8(i)(12)
• 5-year cooling off
• Dividends – 14a-8(i)(13)
No-action letter must be submitted no later than 80 calendar days before a company files
its definitive proxy statement and form of proxy

Trend #1: Litigation
Appealing a No-Action Decision (Company or Proponent)
• Ask the Staff to reconsider
• Staff rarely overturns its own decision
• More likely to reverse if there is a material change in factors or legal issues
• Ask the full Commission to review the Staff’s decision
• Commission review when there is a “matter of substantial importance and where the issues
are novel or unique”
• Commission rarely overturns Staff
• Sue in court to obtain a judicial determination on the question
• Proponent who believes that a company has wrongfully excluded a proposal has an implied
private right of action under Rule 14a-8 to challenge
• Companies may sue rather than rely on the Staff to exclude a proposal through the no-action
process
• Increase in SEC “no view” responses
7

False and Misleading Statements - Rule 14a-8(i)(3)
• Express Scripts Holding Co. v. Chevedden (2014)
• Company sought declaratory judgment to exclude proposal in its proxy statement in the U.S.
District Court for the Eastern District of Missouri
• Proposal: Policy requiring the chairman to be an independent director
• Company argued exclusion based on demonstrably false and misleading statement sin
supporting statement
• Gross misstatement of CEO compensation
• Stated no clawback policy when such policy was adopted and publicly disclosed
• Stated plurality voting when majority voting was adopted and publicly disclosed
• Decision: supporting statement contained “inaccuracies [that] are more than mere
‘minor defects’ that could be corrected easily with minimal editing”
• Criteria for exclusion under Rule 14a-8 and 14a-9 have been met
8

Ordinary Business Matters - Rule 14a-8(i)(7)
• Trinity Wall Street v. Wal-Mart Stores, Inc. (2014)
• Proposal: Amend NCGC Charter so that NCGC would oversee the “formulation and
implementation of, and the public reporting of the formulation and implementation of, policies
and standards that determine whether or not [Wal-Mart] should sell a product that 1)
endangers public safety and well-being; 2) has the substantial potential to impair the
reputation of [Wal-Mart] and/or 3) would reasonably be considered by many offensive to the
family and community values integral to [Wal-Mart]’s promotion of its brand”
• SEC granted no-action relief to Wal-Mart under the ordinary business exception
• Staff did not find that proposal addressed a “significant social policy issue”
• Proponent filed suit in the District of Delaware seeking injunctive relief
• Proposal was not excludable under the ordinary business exception
• Proposal raised a significant policy issue
• Court granted proponent injunctive relief and enjoined Wal-Mart from relying on the
ordinary business exception to exclude the same proposal from its 2015 annual meeting
• Court afforded SEC’s no-action letter less deference than in prior decisions – “undisputed
that the final determination as to the applicability of the ordinary business exception is for
the [c]ourt alone to make”
9

2014 Victories for Shareholder Proponents
• EMC Corp. v. Chevedden (U.S. District Court for the District of Massachusetts);
Omnicom Group, Inc. v. Chevedden (U.S. District Court for the Southern District of
New York); and Chipotle Mexican Grill, Inc. v. Chevedden (U.S. District Court for the
District of Colorado)
• In each case, Company sought declaratory judgment to leave off its proxy statement
a proposal from John Chevedden
• Mr. Chevedden agreed not to sue if company excluded his proposal
• Courts determined that they lacked subject matter jurisdiction
• No adjudicable “case or controversy”
• No actual or imminent legal consequences because company would not face
lawsuit from proponent if excluded and possibility of SEC action or investigate is
remote
10

Takeaways for 2015
• Litigation is an increasingly realistic option for the resolution of shareholder proposal
disputes
• Courts are adjudicating cases more quickly with respect to annual meeting matters
• Uptick in litigation is providing a rapidly-growing body of case law relating to Rule 14a-8
challenges
• Litigation presents costs and uncertainties
• Litigation provides a degree of uncertainty that can be avoided through the no-action letter
process
• Litigation can take years to resolve – may put a company in the position of having to decide
whether to exclude a proposal while litigation is pending
• Will take significant time before sufficient body of case law develops for companies to be able
to predict outcome of litigation; current precedent is mixed vs. voluminous body of no-action
letter precedent
11

Trend #2: Proxy Access Proposals
• In 2010, the SEC adopted “proxy access” to allow eligible shareholders to include
nominees in companies’ proxy materials
• Eligibility: hold at least 3% of the outstanding voting power and have continuously held such
shares for at least 3 years
• Shareholders could nominate up to 25% of the board, or one nominee, whichever is greater
• In 2011, U.S. Court of Appeals for the District of Columbia Circuit overturned proxy
access
• For 2012 proxy season, SEC amended Rule 14a-8(i)(8) requiring companies to
include in their proxy materials shareholder proposals addressing the director
nomination process
• Empowers shareholders to implement proxy access on a company-by-company basis
• In 2012 and 2013, only 39 shareholder-back proxy access proposals put into place
• Only 10 proposals approved by shareholders
• 2015 – New York City Comptroller’s “2015 Boardroom Accountability Project” putting
forth proxy access proposals at more than 75 public companies
• Approximately 100 companies will face proxy access proposals in 2015
12

Trend #2: Proxy Access Proposals
• Whole Foods Proxy Access Proposal
• Shareholder proposal - shareholder or group of shareholder that own at least 3% of the
company’s shares continuously for 3 years can nominate up to 20% of the board
• Whole Foods proposal – single shareholder that owns at least 9% of the company’s shares
continuously (amended to 5%) for 5 years can nominate the greater of (1) one director or (2)
10% of the board
• Whole Foods sought no-action relief under Rule 14a-8(i)(9) – shareholder proposal conflicts
with management proposal
• December – SEC granted no-action relief to SEC to exclude shareholder proposal
• Council of Institutional Investors asked the SEC to reconsider its decision
• January – SEC withdraws its no-action letter to Whole Foods in an unprecedented move
• SEC reviewing application of Rule 14a-8(i)(9)
• SEC “will express no views” for the remainder of this proxy season on 14a-8(i)(9)
• February – Whole Foods delayed annual meeting to allow board adequate time to
review and evaluate the company’s alternatives
13

Recent Changes in Debt Tender Offer Rules

• On January 23, 2015, the SEC granted no action relief in response
to a letter submitted on behalf of a consortium of law firms seeking
relief from rules regarding:
• the length of time that tender or exchange offers for debt
securities must be kept open,
• the nature of the debt securities for which tenders or exchanges
are sought, and
• the type of consideration that may be offered.
• Tender offer rules require that issuers or offerors must keep the
offer open for a minimum of 20 business days.
• The 20 business day rule is intended to afford participants sufficient
time to make a decision as to whether or not to participate in the
tender.
15

• Beginning in the 1986, the SEC began granting relief from the 20-
business-day requirement in certain narrow circumstances.
• Specifically, the SEC allowed tender offers for non-convertible debt
securities with an investment grade rating that were held open for a
period of seven to 10 calendar days and met certain other
qualifications.
• The rationale for the shortened tender off period was that debt
tender offers, in certain circumstances, present significantly different
timing considerations than those involved in tender offers for equity
securities.

Rationale for Shorter Tender Offer Period
• Ability to Better Align Timing of Tender Offer with New Offering
• Debt tender offers often involve:
• Refinancing with new debt securities with a lower interest rate
• Refinancing with debt that will mature in a short time frame with debt with a longer maturity
• Need to Quickly Act on Favorable Market Conditions
• The above requires favorable market conditions and the ability to effect the refinancing quickly to
lessen the exposure to changing market conditions.
• The need for a short tender offer period is important to avoid having to pay "double interest" or
"negative carry."
• No Harm to Investors
• Favorable to investors who want to roll over their investment.
• Unlike an equity offering, debt tender offers typically either have a modest premium over the
prevailing market price or a close approximation of the then applicable redemption price.
Therefore, the holder doesn't have to weigh any potential upside.
• Technological Advancements
• Advancements in technology since 1986 enable investors to react efficiently to debt tender offers
in a shorter period of time.

SEC Relief - Debt Tender Offer Rules
• The relief granted by the SEC has changed its previous position in the
following principal ways:
• Change to Five Business Day Requirement: Under the new relief, offers may be
kept open for a period as short as five business days, instead of the old seven-to-10-
calendar-day requirement for certain debt tender offers.
• Consideration May Consist of Qualified Debt Securities: Under the new relief,
the consideration in such offers may consist of cash or “Qualified Debt Securities” or
a combination of the two.
• "Qualified Debt Securities" are generally defined as "non-convertible debt securities that are identical in all
material respects. . . To the debt securities that are the subject of the tender offer except for the maturity date,
interest payment and record dates, redemption provisions and interest rate."
• Elimination of Investment Grade Requirement: Under the new relief, offers may
be made for debt securities that are not given an investment grade rating by a
nationally recognized statistical rating organization.
• Immediate Widespread Dissemination: For tender and exchange offers to qualify
under the SEC’s new relief, the offeror must provide “Immediate Widespread
Dissemination” of the offer materials in the manner specified by the SEC and
described below; the prior practice for 10-day offers was to deliver the offer
documents before midnight on the first day of the offer.

SEC Relief - Conditions
• There are a number of detailed conditions that the issuer must follow in order
to qualify for the relief granted. Key among those conditions are as follows:
• All five day offers must be announced by press release through a widely
disseminated news or wire service disclosing the basic terms of the offer and an
active hyperlink to the instructions or documents relating to the tender of securities.
• The press release must be issued no later than 10:00 a.m. (Eastern time) on the first
business day of the offer.
• Public reporting companies must furnish the press release in a Form 8-K filed no
later than 12:00 p.m. on the first business day of the offer.
• With respect to fixed spread tender offers that are tied to a benchmark such as
Treasury or LIBOR, as well as exchange offers, the exact consideration offered
(including the principal amount and interest rate of any Qualified Debt Securities
offered) must be disclosed no later than 2:00 p.m. on the last business day of the
offer.
• Also, the offer may expire as early as 5:00 p.m. on the last business day, which is
significantly earlier than what prior Staff interpretations allowed, which required an
offer to remain open until midnight for that day to count as a full business day.

Offers Explicitly Precluded From Relief
• Some offers are explicitly precluded from the relief, including:
• Consent Solicitation
• Partial Tender Offers
• Third-Party Tender Offers
• Waterfall Debt Tender Offers
• Offers made when there is a default or event of default under the indenture or other
material credit agreement
• Offers made when the issuer is the subject of a bankruptcy or insolvency proceeding
• Offers made in anticipation of or in response to a change of control or other
extraordinary transaction such as a merger or other tender offer

Recent Changes in Debt Tender Offer Rules -
Conclusion
• The Staff is recognizing technological advances and has taken a step
towards updating the rules as they relate to tender and exchange offers for
non-convertible debt securities.
• By applying these new procedures across the board to all non-convertible
debt securities, regardless of rating, the SEC has leveled the playing field for
all.
• This relief does not go without conditions mentioned earlier.
• General consensus among issuers and their counsels is that this a positive
step, but they continue to seek to liberalize the rules related to debt tenders to
allow the market to function in the most efficient way possible.
• The no-action letter is available in its entirety at
http://www.sec.gov/divisions/corpfin/cfnoaction/2015/abbreviated-offers-debt-
securities012315-sec14.pdf.

Litigation-Related Bylaws

Litigation-Related Bylaws
• Exclusive forum and fee-shifting bylaws are a response to the
increasing volume of costly, multi-forum litigation challenging a
transaction or board decision and “forum shopping”
• 2013 M&A litigation landscape*
• In 2013, 94% of M&A deals over $100 million were challenged by
shareholders
• Average of 5 lawsuits per transaction for deals $100 million to $1 billion
• Average of 6.2 lawsuits for deals over $1 billion
• 62% of deal litigation was multi-jurisdictional
• After Delaware Court of Chancery, most active courts:
• New York County, NY (Manhattan)
• Santa Clara County, CA (San Jose)
• Harris County, TX (Houston)
* Cornerstone Research, Shareholder Litigation Involving Mergers and Acquisitions – Review of 2013 M&A Litigation,
http://www.cornerstone.com/ShareholderLitigation-Involving-M-and-A-2013-Filings .
23

Litigation-Related Bylaws – Exclusive Forum
• Board-adopted provision designating Delaware as the exclusive forum for certain
shareholder suits
• Adoption through amendment to certificate of incorporation (requiring shareholder
approval) or bylaws (unless prohibited by the certificate of incorporation, board only)
• 2013 – Boilmakers Local 154 Retirement Fund v. Chevron Corporation
• Board adopted forum selection provision
• Chancellor Strine upheld the facial validity of the forum selection bylaw adopted by the board
• Shareholders purchasing stock were on notice that the certificate of incorporation gave the
board the authority to adopt and amend bylaws unilaterally and that board-adopted bylaws
were binding on shareholders
• Bylaws not intended to regulate what suits may be brought against the corporation, only where
internal governance suits may be brought
24

• 2014 – City of Providence v. First Citizens BancShares
• Delaware bank holding company headquartered in North Carolina entered into a merger
agreement to acquire an affiliate
• On the day the merger was announced, board also amended bylaws to add a forum selection
provision designating the federal and state courts of North Carolina as the exclusive forum for
breach of fiduciary duty and other internal affairs claims
• Shareholder challenged both the merger itself and the bylaw amendment
• Chancery Court expanded on Chevron, confirming validity of forum selection bylaws that
designate an exclusive forum for intra-corporate litigation other than Delaware
• The DGCL does not have any provisions granting jurisdiction to Delaware courts
• All claims challenging the merger were Delaware common law claims that could be
asserted in a non-Delaware forum
• Dismissed breach of fiduciary duty claims for adopting bylaw
• Selection of North Carolina as the exclusive forum protected under business judgment rule
• First Citizens increases the likelihood that out-of-state courts will uphold bylaws
designating Delaware (or other states) as exclusive forum
• State courts in California, Illinois and New York already have done so
25

Forum Selection Bylaws Today
• Over 400 corporations have adopted to date
• Majority adopted unilaterally by boards through a bylaw amendment
• Less than 20 adopted via a charter amendment
• ISS and Glass Lewis recommend against adoption of forum selection clauses up
for a shareholder vote
• In 2014, each forum selection clause put to a vote passed (ranging from 56% to 90% of
votes cast)
• New in 2015 - ISS will recommend a vote against or withhold for directors, committee
members of the entire board, if the board amends the company’s bylaws or charter without
shareholder approval
26

Litigation-Related Bylaws – Fee Shifting
• Provision in governing documents that allows a corporation to recover legal
expenses from an unsuccessful plaintiff in an intra-corporate dispute
• 2014 – ATP Tour, Inc. v. Deutscher Tennis Bund
• Delaware Supreme Court upheld the facial validity of a fee-shifting bylaw of a non-stock
corporation
• Fee-shifting bylaws “may be enforceable if adopted by the appropriate corporate procedures
and for a proper corporate purpose”
• Enforceability will depend on the manner in which it was adopted and the circumstances under
which it was invoked
• “[T]he intent to deter litigation…is not invariably an improper purpose”
• If enforceable, fee-shifting bylaws can be enforced against losing claimants whether or not
they were shareholders at the time the bylaw provision was adopted
• Robert Strougo v. First Aviation Services - Test case for fee-shifting bylaws in a stock
corporation in briefing stages in Delaware
27

Litigation-Related Bylaws – Fee-Shifting
Fee-Shifting Bylaws Today
• According to Council of Institutional Investors, as of January 27, 2015, 13 Russell
3000 companies, 28 other publicly-traded companies (non-Russell 3000) have
adopted forum selection provisions
• New practice of IPO companies, including Alibaba Group Holding Ltd., including
exclusive forum provisions in their IPO governing documents
• Vice Chancellor Laster has suggested that fee-shifting provisions may be invalid
unless adopted in a charter amendment
• Delaware legislature is expected to take action with respect to fee-shifting
provisions for stock corporations in 2015
• Letter writing campaigns by over 30 pension funds and other institutional investors
• SEC may respond – push toward refusing to declare registration statements
effective for companies whose governing documents include fee-shifting
provisions
28

Public Companies and Social Media

• New technologies, including social media, provide companies with easy-to-
use, low-cost tools that companies could be using to tell their stories better.
• However, in the age of social media, corporate communications disseminated
through non-traditional outlets such as corporate blogs, Facebook and Twitter
may face increased scrutiny by the SEC.
• Netflix Example: A few years ago Netflix, Inc. and its CEO, Reed Hastings,
received “Wells Notices” from the Staff of the SEC indicating the Staff’s intent
to recommend that the SEC bring suit against Netflix and Mr. Hastings for
violations of Regulation Fair Disclosure (“Regulation FD”) and other related
provisions of the Federal securities laws.
• At issue is whether disclosure that Mr. Hastings posted on his Facebook page
that Netflix exceeded 1 billion hours of video streaming in a month for the first
time violated prohibitions on the selective disclosure of material non-public
information.
31

SEC Approves Use of Company Website for
Purposes of Regulation FD
• In 2008, in light of the development and proliferation of company websites and an
expectation that continued technological advances would further enhance the quality
of, and speed with which, information would be delivered and available to investors and
the market generally, the SEC issued interpretive guidance that, among other things,
provided guidance on when information posted on a company website would be
considered “public” for purposes of satisfying Regulation FD.
• The guidance requires companies evaluating whether information posted on a
company website is “public” to consider whether:
• (1) the website is a “recognized channel of distribution;”
• (2) posting of information on the website disseminates the information in a manner making it
available to the securities marketplace in general; and
• (3) there has been a reasonable waiting period for investors and the market to react to the posted
information.
• As satisfaction of these conditions is somewhat subjective, many issuers have
continued to use press releases and other time-tested distribution methods as their
primary means of complying with Regulation FD.

Netflix Investigation
• Although no further action was taken against Netflix or its CEO, the
investigation revealed that there was some uncertainty regarding Regulation
FD and the 2008 Guidance, as far as the rules applying to information
released through social media are concerned.
• Rather than revise the 2008 Guidance, the SEC’s Report of Investigation into
the Netflix matter was issued as an update, explaining how the existing
guidance extends to social media disclosures.
• The SEC recognizes and understands that companies can and should use
the Internet and other electronic communications to disseminate company
information, since it promotes efficiency and transparency.
• The SEC also stated that it does “not wish to inhibit the content, form, or
forum of any such disclosure, and we are mindful of placing additional
compliance burdens on issuers.”

• The investigation and report presented a good opportunity
to make these two points:
• Issuer communications through social media channels require careful
Regulation FD analysis comparable to communications through more
traditional channels; and
• The principles outlined in the 2008 Guidance — and specifically the
concept that the investing public should be alerted to the channels of
distribution a company will use to disseminate material information — apply
with equal force to corporate disclosures made through social media
channels.

Social Media – Factors to Consider
• Before using social media as a means of communication, each company
should carefully weigh the pros and cons before doing so.
• Some factors to consider include:
• How much time does it take to write a blog entry of a few paragraphs or a tweet and
have it vetted before posting?
• How many investors and analysts will follow what you blog and tweet?
• How many follow-up questions might be prompted by your blogs and tweets? Once
you start engaging through social media channels, the expectations of transparency
in that manner increase.
• How many questions that your investors would otherwise call you about would get
answered in a blog or tweet?

Social Media – Factors to Consider
• How much value is associated with providing information to the market quickly in a
crisis?
• How much will implementing a social media plan cost in terms of controls,
education?
• Does your legal department and IR and corporate communications departments
have a sufficiently close partnership and enough trust to pull this off?
• Do your designated spokespersons for Regulation FD purposes have the capacity to
assume this role for social media communication purposes?

Existing vs. New Content
• Existing Content
• It's a non-issue to use social media to expand the distribution of information a
company is already distributing via other channels (e.g. SEC filings, website
updates).
• No cost
• Can be automated
• Strive for simultaneous dissemination - reasonable investor will expect the
company to use that channel consistently and in a timely manner.
• Establish separate IR social media accounts rather than relying on the main
corporate ones (which are cluttered with content related to marketing and
customers).

Existing vs. New Content
• New Content
• From a Regulation FD standpoint, you need to regularly use and direct
people towards your social media channels as a source of information if
you want to make them legally acceptable outlets for disclosure of material
information. It’s not enough to blog, have a Twitter presence, etc.
• For example, Twitter includes the following in each of its earnings
releases:
• "Twitter has used, and intends to continue to use, its Investor Relations website (investor.twitterinc.com),
as well as certain Twitter accounts (@dickc, @twitter and @twitterIR), as means of disclosing material
non-public information and for complying with its disclosure obligations under Regulation FD."
• Again, look to the SEC’s 2008 website guidance that provides nonexclusive
factors for companies to consider in evaluating whether a company website
(and seemingly by extension, blogs or other social media channels) is (1) a
recognized channel of distribution and (2) whether the company information
on such platform is “posted and accessible” - and therefore “disseminated”
as required by Regulation FD.

Common Topics on Social Media
• Announcement of deals
• Interviews with company leaders
• Earnings announcements
• Product announcements
• Recap of annual shareholder meeting
• Recap of investor/analyst meeting
• Recap of earnings call
• How shareholder engagement is evolving at the company
• Filings made with the SEC
• Live-tweeting earnings calls
• Articles or blogs about the company
• Articles or blogs in which company leaders are quoted

Social Media Conclusion
• Weigh the pros and cons of using social media.
• Examine whether they are using a “recognized channel of distribution” for
communicating with their investors and provide appropriate notice to
investors of the specific channels a company will use.
• Identify on corporate website any social media channels a company intends
to use for the dissemination of material, nonpublic information, to give
investors and the markets the opportunity to subscribe, join, register or review
them.
• Have a Social Media Policy
• Ensure that the statements communicated via social media are consistent in
substance and tenor, accurate and not misleading, and are in conformance with
Regulation FD and other applicable securities laws, including Rule 10b-5, Reg G,
proxy solicitation rules, Exchange listing rules, disclosure laws and practices,
including your usual "disclaimers," forward-looking statements, and your other
codes and policies.

Social Media Conclusion
• Any doubt, supplement – don't replace
• Although times are changes, most companies still use social media to
supplement existing modes of communication, not replace them.

Investor Activism Update

Hedge Funds and other activist investors have gained significant traction in
recent years
• Increased Financial Ability - nearly $200 billion in activist hedge funds
• New funds started by individuals who previously worked for well-known successful
activists
• Examples include Corvex Management, launched in 2010 by Keith Meister (former protégé of
Carl Icahn) and Marcato Capital Management Fund, launched in 2010 by Mick McGuire
(former protégé of Bill Ackman)
• Increased Sophistication
• More nuanced approach to activism not focused solely on short-term gains
• Support from Traditional Long Equity Investors
• Traditional investors view activists as bringing value to investors
• 76% of institutional investors viewed shareholder activism as positive in a 2014 survey
• Increase in Media Attention
• Activists have successfully used the media as a tool to effect change
• Larger Companies More Vulnerable
• Larger companies have become more exposed as a result of governance initiatives such as
elimination of classified boards and shareholder rights plans 43

Activist Tactics
• Focus on strategic initiatives as a way to increase stock price and liquidity
• Merger with competitor
• Sale of company
• Spin-offs
• Divestitures of underperforming assets
• Stock buybacks
• Increased cash dividend or extraordinary one-time dividend
• Management changes
• Proxy contests
• Stopping pending or proposed strategic transaction
44

Proxy Contests
• In 2014, 92 proxy contests
• Only includes fights where dissident filed proxy materials or provided public notice of an intent
to solicit proxies
• Excludes companies where changes or agreements were reached prior to any public filings
• Of 182 proxy fights in 2013 and 2014, only 34% resulted in a shareholder vote
• 81% of proxy fights result in a settlement or negotiated resolution involved management giving
activist at least one board seat
• ISS and Glass Lewis support activists in most campaigns by supporting some or all
of a dissident’s nominees
45

Company Action Items
• Stock watch programs
• Program to monitor trading patterns in company shares
• Monitor ownership reports filed with the SEC
• Generally watch activists that play in industry or sector
• Monitor early warning signs
• Be on the lookout for small gestures – letters to management, attendance on an earnings call,
etc.
• These can serve as warning signs in advance of an SEC filing that will garner more attention
• Shareholder outreach and communications plan
• Ongoing communications with significant shareholders to tell the company’s story
• Provide feedback from shareholders and built relationships in the event an activist emerges
• Develop a plan to reach out to smaller investors and the analyst community
• Be aware of Regulation FD compliance
• Company responses to activists can be won with the success of a communications and
investor relations plan
46

Questions?
Christina Roupas Karen A. Weber
Partner, Securities/
Chicago
+1 (312) 558-8794
kweber@winston.com
Associate, Securities/
Chicago
+1 (312) 558-3722
croupas@winston.com

Thank You

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