Memorex 2014 Annual Report Download - page 19

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requirement for shareholder approval of the transaction, the interest of third parties in the Company or our
businesses and the availability of financing to potential buyers on reasonable terms or at all. We do not intend to
provide updates or make any comments regarding the evaluation of strategic alternatives unless our Board of
Directors has approved a specific transaction or management otherwise deems disclosure appropriate. We expect
to incur expenses associated with identifying and evaluating strategic alternatives. In addition, the process of
reviewing strategic alternatives and implementing any course of action ultimately selected may be disruptive to the
Company’s business operations, may distract the Company’s management team from their day-to-day
responsibilities and could make it more difficult to retain customers, vendors and employees. Any of these risks or
uncertainties could adversely affect the Company’s business, financial condition, results of operations or cash
flows.
Our business could be negatively affected as a result of a potential proxy contest for the election of
directors at our annual meeting and other activist shareholder activities. On December 16, 2014, the Clinton
Group and its affiliates submitted a notice of its intention to nominate three director candidates for election to the
Board at our 2015 annual meeting of shareholders. If the Clinton Group does not withdraw its nominations or we
are unable to reach an agreement with the Clinton Group relating to our 2015 annual meeting, a proxy contest is
likely to occur. It is possible that directors nominated by the Clinton Group could constitute half of the Board
following our 2015 annual meeting.
A proxy contest would require us to incur significant legal fees and proxy solicitation expenses and require
significant time and attention by management and the Board of Directors. In addition, the potential of a proxy
contest, or other activist shareholder activities, could interfere with our ability to execute our transformation or to
identify or pursue strategic alternatives, give rise to perceived uncertainties as to our future direction, adversely
affect our relationships with key business partners, result in the loss of potential business opportunities and make it
more difficult to attract and retain qualified personnel, any of which could materially and adversely affect our
business and operating results. In addition, if the Clinton Group’s nominees were to constitute half of the Board
following our 2015 annual meeting, because any action by the Board requires the affirmative vote of not less than a
majority of the directors present and voting, it is possible that the Board would deadlock on certain issues. Further,
such a change in a majority of the Board would result in a change of control under the severance and change of
control agreements we have with our management and certain outstanding equity awards, which may trigger
severance payments, change of control benefits, and/or the acceleration of those equity awards. A change in a
majority of the Board will also result in a change of control under certain contracts with third parties including our
credit agreements, if we are unable to secure appropriate waivers or amendments to any such contracts. The
market price of our common stock could be subject to significant fluctuation or otherwise be adversely affected by
the events, risks and uncertainties described above or a threat of future stockholder activism.
Additionally, as part of its ongoing activist campaign, Spear Point Capital Fund LP and its affiliates filed a
shareholder derivative action in Delaware Chancery Court on February 9, 2015 against the Company and the
members of its Board of Directors. Plaintiffs contend that the defendants paid excessive compensation to the
directors. They seek damages for breaches of fiduciary duties, waste of corporate assets and unjust enrichment.
The market price of our common stock is volatile. The market price of our common stock has been, and
may continue to be, volatile. Any of the factors discussed above or such as the following may affect the market price
of our common stock:
• actual or anticipated fluctuations in our operating results;
• announcements of technological innovations by us or our competitors which may decrease the
volume and profitability of sales of our existing products and increase the risk of inventory
obsolescence;
• new products introduced by us or our competitors;
• periods of severe pricing pressures due to oversupply or price erosion resulting from competitive
pressures or industry consolidation;
• developments with respect to patents or proprietary rights;
• conditions and trends in the consumer electronics and data storage industries;
• contraction in our operating results or growth rates;
• the potential impact of activist investors;