Is the “Proxy Put” Dead? Pontiac General Employees Retirement Fund v. Healthways

2 December 2014
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Key takeaways

  • Delaware courts take a very skeptical view of financing agreement “change of control” provisions that restrict board membership changes by which incumbent directors and nominees that they approve cease to be a majority of the board, considering such provisions a potential means of entrenching the incumbent board.
  • A “continuing directors” provision of this kind that does not give the board the right to approve nominees and avoid a change of control in connection with a proxy contest raises the risk of litigation against both directors and their lenders by the company’s stockholders.
  • The benefit of such a provision may not be worth that risk, particularly for credits that include significant covenant restrictions that will limit the actions any new board might take without lender consent.