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Is the “Proxy Put” Dead? Pontiac General Employees Retirement Fund v. Healthways
2 December 2014
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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.
David A. Brittenham
Jeffrey E. Ross
Scott B. Selinger
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