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Poison Put Provisions in Debt Financing: Lessons on Enforceability From Recent Cases Navigating Change-in-Control Provisions That Protect Against Shareholder Activists and Hostile Takeovers

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WEDNESDAY, FEBRUARY 4, 2015

Presenting a live 90-minute webinar with interactive Q&A

Kai Haakon E. Liekefett, Partner, Vinson & Elkins, Houston

Muir Paterson, Managing Director, Goldman Sachs & Co., New York

David W. Wicklund, Partner, Vinson & Elkins, New York

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Source: Carl Icahn’s website www.shareholderssquaretable.com

Poison Puts in Debt Financings

Strafford Live Webinar February 4, 2015


Program Agenda

Poison Puts in Debt Financings

I. Poison Puts, Hostile Bids and Shareholder Activism

(Muir Paterson, [email protected], Goldman Sachs)

II. Case Law on Poison Put Provisions

(Kai Haakon E. Liekefett, [email protected], Vinson & Elkins)

III. Drafting, Negotiation and Use of Poison Puts

(David W. Wicklund, [email protected], Vinson & Elkins)

Appendix: Presenter Bios

6

mailto:[email protected]



©2015 Vinson & Elkins LLP ©2015 Vinson & Elkins LLP

I.

Poison Puts and

Shareholder Activism

Muir Paterson


• Change of control provisions (a.k.a. “poison puts”) became popular during

the wave of junk bond-fueled hostile tender offers in the 1980s

In the 1988 leveraged buyout of RJR Nabisco by KKR, KKR borrowed billions to

finance the acquisition and did not refinance RJR Nabisco’s existing debt

After the acquisition, RJR Nabisco was in greater debt and more likely to default,

thereby significantly reducing the value of the pre-existing debt

• In response to investor demand for protection against this ‘event risk,’

issuers started to give investors the right to sell their bonds back to the

issuer, either at par or a premium

Initially, the puts were exercisable only if there was the threat of a hostile takeover

Since most target boards eventually agreed to a ‘friendly’ takeover at gunpoint, it

became common to make these puts exercisable upon any change in ownership

• Today, most public companies have poison puts in their credit agreements,

bond indentures or both

Poison Puts, Hostile Bids and Shareholder Activism

Introduction

The History of Poison Puts

8

Today, there are approximately 4,500 debt instruments with poison puts


• Usually contains a covenant

relating to a change of control

• Requires the issuer to offer to

purchase all of the bonds at a

purchase price in cash equal to

101% of the principal amount

plus accrued and unpaid interest

• Usually contains an event of

default relating to a change of

control

• Requires the administrative agent,

upon the written request of a

majority of the lenders, to: (i)

terminate the commitments; (ii)

declare the principal amount and

interest outstanding immediately

due and payable; and (iii)

terminate any letters of credit

Types of Poison Puts

Indentures Credit Agreements

Bond Indentures vs. Credit Agreements


9


• Companies often gloss over the fine print of the poison put provisions

• When the supply of credit is abundant, these provisions have no impact on

M&A activity

• However, during economic downturns such as the 2008/09 financial crisis

(or currently in the oil and gas industry), it can become difficult to

refinance bank or bond debt

• In difficult market conditions, poison puts can act as an impediment to

friendly M&A activity. By contrast, it is rare for poison puts to deter

hostile takeover offers because hostile bidders are typically financially

strong enough to refinance the target’s debt (as long it still makes economic

sense for them despite the potentially substantial refinancing cost)


Poison Puts and Hostile Takeovers

Poison Puts Rarely Deter Hostile Bids

10

In practice, poison puts rarely deter hostile takeover bids


Source: Thomson Reuters, Capital IQ, MergerMetrics, public sources as of 12/31/2014

$149

$442$468

$249

$74

$171$132

$66$111

$499

$265

$640

$728

$393

$128

$273

$170

$115

$127

$577

56%

69%

64% 63%

58%

63%

78%

57%

87% 87%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

With

dra

wn

as %

of

To

tal

Vo

lum

e (

$bn

)

Withdrawn Volume Completed / Pending Volume Withdrawn Volume as % of Total Hostile Activity

Unsolicited and Hostile Takeover Offers 2005 – 2014


Unsolicited and Hostile Activity is at Record Levels

11


• Today, most public companies have negotiated poison put provisions that

are triggered not only if the company is acquired, but also if a shareholder

dissident unseats a majority of the company’s incumbent directors

(a.k.a. “proxy puts”)

• Incumbent boards have used the specter of a debt default in proxy

contests during the current wave of shareholder activism

• Recent case law has challenged change-of-control triggers tied to

board seat changes on the basis that they dilute the shareholder franchise

This will be discussed in Part II today


Poison Puts and Shareholder Activism

Poison Puts have Impacted Shareholder Activism

12

Proxy puts have impacted shareholder activism campaigns,

but recent case law may change this


EAUM:

$8.9 bn Recently raised $2.5 bn

EAUM:

$16.8 bn

Raised ~$3 bn through a

European IPO

EAUM:

$9.4 bn

Raised $2 bn over the course of

2014

EAUM:

$9.8 bn

Received commitments for $3.3

bn over a 3-month span in 2013

EAUM:

$14.6 bn

Plans to raise up to $1.5 bn in

new funds

$219.8

$162.3

$113.5 $102.7

$94.7

Current Q4 2013 Q4 2012 Q4 2011 Q4 2010

Activist Fund AUM 2010 – 2014

Activists can Access Increasing Amounts of Capital


Source: Thomson, public sources (includes reported equity assets under management of activists included in the FactSet “SharkWatch 50”)

13


Hedge Funds CAGR 2009 – 2013

Activist Funds have Outperformed other Hedge Funds

14

Source: Goldman Sachs & Co.



The Tide of Shareholder Activism is Rising

Shareholder Activism 2003 – 2014

113 110

249

443

511 499

373 364 363 383 378

450

69 44

67

107 109 121

133

94 94 77

91 95

0

100

200

300

400

500

600

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Activist Campaigns

Activist Proxy Fights

15

Source: SharkRepellent



Large Cap Companies have Increasingly Become Targets

Targets with > 500 million Market Cap 2010 – 2014

16


Source: Thomson, public sources

44

59 63

82

2010 2011 2012 2013 2014

101


Pension Funds and Some Long-Only Investors Have Been

Willing to Go “Public” in Support of Activist Positions

Company Institutional

Investor Activist

Pershing Square

Icahn /

Southeastern

Starboard

Trian

Icahn

Trian

JANA

Willingness to Support Activist Nominees in Proxy Fights1

Firm Name

% Proxy Fights Voted “FOR”

a Dissident Nominee

Acti

vely

Man

ag

ed

T. Rowe Price Associates 73.9 %

Janus Capital Management 60.0

Fidelity Management & Research 58.6

Morgan Stanley Wealth Management 50.0

MFS Investment Management 50.0

TIAA – CREF 50.0

Franklin Advisors 33.3

Ind

ex F

un

ds

Norges Bank Investment Mgmt 50.0 %

Mellon Capital 47.4

Geode Capital 47.2

BlackRock 33.3

State Street Global 20.0

Northern Trust 16.7

The Vanguard Group 4.3

1 Institutional Shareholder Services. Results of definitive proxy fights at Russell 3000 companies, Jan 2010 – 2014 (defined as the percentage of situations in which the majority of sub-

funds voted either for management or dissident nominees)


Growing Support From Mainstream Investors

17


*Percentage of outright or partial victories or settlements

by dissidents of total nominations of opposing slates

36%

50%

55% 57%

49% 51%

54% 55%

59%

52%

60%

73%

30%

40%

50%

60%

70%

80%

90%

100%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Su

ccess R

ate

(%

)*

Activist Success Rate 2003 – 2014

Activists Have Become Very Successful

18




Minority Board Representation

57%

Board Control 31%

Oppose Management Proposal

1%

Withhold the Vote Campaign

2%

Stockholder Proposal 4%

Oppose M&A Transaction

4%

The Majority of Proxy Contests are for Short Slates

Campaign Types in 2014

19




ISS Support for Dissidents has been Significant

ISS Recommendations 2009 – 2014

20


20092010

20112012

2013

2014

45% 45% 55%

32% 50% 57%

50% 48% 41%

52%

47% 37%

5% 6% 5%

16% 6%

7%

For Dissident (1)

For Incumbent (2)

Split

(1) Support for more than half of the dissident slate

(2) Support for more than half of the incumbent board slate



Activist Attainment of Board Seats – 2005 Activist Attainment of Board Seats – 2014

“I'm even surprised… being admitted to all these boards without a proxy fight would

have been unthinkable only a year ago.”

-Carl Icahn

Today, over three quarters of activist board seats are

now gained through settlement agreements

Source: FactSet, Shark Repellent, The Wall Street Journal

Note: Includes all proxy fights at companies with market cap greater than $500mm at time of campaign.

In the mid-2000s, companies became increasingly

willing to settle with activists in order to avoid a proxy

contest

Settled Without Fight

31%

Settled Before Vote

31%

Went to Vote 38%

Settled

Without Fight 41%

Settled Before Vote

35%

Went to Vote 24%

Board Seats Through Settlements 2005 vs. 2014


21


II.

Case Law on

Poison Put Provisions

Kai Haakon E. Liekefett



The Amylin Case

Delaware Court of Chancery, May 12, 2009


Case Law on Poison Put Provisions

The Amylin Case: Facts

24

• On June 8, 2007, Amylin Pharmaceuticals, Inc. issued a series of

convertible senior notes due 2014 under an indenture with The Bank of

New York Mellon Trust Company as the trustee

• The indenture was governed by New York law and contained a change of

control provision

• The change of control provision included a proxy put prong, which gave

the noteholders the right to require Amylin to repurchase their notes at face

value upon a “Fundamental Change”

The Facts



The Amylin Case: Facts (Cont’d)

25

• The language of the indenture’s proxy put was as follows:

“Fundamental Change” included if “at any time the Continuing Directors

do not constitute a majority of the Company's Board of Directors….”

“Continuing Directors” was defined as: “(i) individuals who on the Issue

Date constituted the Board of Directors and (ii) any new directors whose

election to the Board of Directors or whose nomination for election by the

stockholders of the Company was approved by at least a majority of

the directors then still in office (or a duly constituted committee thereof)

either who were directors on the Issue Date or whose election or

nomination for election was previously so approved.”




26

• On January 28, 2009, Carl Icahn notified Amylin of its intention to nominate

a slate of five directors to Amylin’s 12-member board

• On January 29, 2009, Eastbourne Capital Management notified Amylin of its

intention to nominate its own five-person slate

• On March 9, 2009, Eastbourne sent a letter to the board urging it to

“approve” the dissident slates for purposes of the indenture

• On March 24, 2009, a shareholder of Amylin filed a class action

complaint against Amylin and each of its directors alleging breaches of the

fiduciary duties of care and loyalty by the board (i) in the adoption of the

indenture regarding the proxy put provision; (ii) in failing to approve the

dissident nominees in order to defuse the proxy put and (iii) for misleading

and coercive disclosure of the risks presented by the proxy put provision in

the company’s Form 10-K




27

• Amylin believed that its board had the ability to approve the dissident

slates for purposes of the indenture and sought confirmation of its view

from the trustee

• The trustee declined to provide the requested confirmation. The trustee

argued that the incumbent directors cannot “approve” as a “Continuing

Director” any person whose election the incumbent directors publicly oppose.

In this trustee’s view, the word “approve” is synonymous with “endorse

or recommend”

• Amylin filed a cross-claim against the trustee, and sought declaratory relief

that it can approve the dissident nominees for purposes of the indenture while

simultaneously recommending against their election to the board




28

• Prior to trial, the shareholder dropped its fiduciary duty claims against

Amylin’s board under a partial settlement. As a result, the only matters

before the court were whether the board has the power and the right under

the indenture to approve the dissident nominees

• Moreover, Eastbourne reduced the number of its candidates to three and

Icahn reduced the number of his candidates to two. As a result, only five of

the 12 board seats of Amyln remained contested. This made a majority

board turnover impossible

• Nevertheless the Court agreed to rule on whether the board had the power

to approve the dissident nominees



The Amylin Case: Decision

29

• Power to Approve:

Vice Chancellor Lamb held that, in the abstract, generally a board has the power

to approve a slate of dissident nominees for purposes of an indenture without

endorsing them and may simultaneously recommend and endorse its own slate

instead

• Right to Approve:

The court then turned to the question of whether the Amylin board properly

exercised the right to approve in this case

The court stated that a company has an implied duty of good faith and fair

dealing under an indenture. Therefore, a board may approve the dissident

nominees only if it determines in good faith that the election of the dissident

nominees would not be materially adverse to the interests of the corporation

or its stockholders

Due to an underdeveloped record, the court treated this issue as unripe

The Decision


The SandRidge Case

Delaware Court of Chancery, March 8, 2013



The SandRidge Case: Facts

31

• TPG-Axon is a hedge fund that held approximately 7% of the shares of

SandRidge Energy, Inc.

• Beginning in November 2012, TPG-Axon started to publicly demand

various governance reforms while asserting that SandRidge had been

underperforming

• The SandRidge board responded to these demands by adopting a poison

pill and amending its bylaws to inhibit stockholder action by written

consent

• In December, TPG commenced a formal consent solicitation to declassify

SandRidge’s seven-member board and to remove and replace all of its

incumbent directors, prompting the SandRidge board to initiate its own

consent revocation solicitation to defeat TPG’s dissident slate

The Facts



The SandRidge Case: Facts (Cont’d)

32

• In its preliminary consent revocation statement, the SandRidge board

warned stockholders that replacing all of the company’s directors, as

TPG intended, would trigger a put right in respect of the company’s

outstanding $4.3 billion principal amount of debt, and that “[a] mandatory

refinancing of this magnitude would present an extreme, risky and

unnecessary financial burden”

• The language of the indenture’s proxy put was as follows:

“During any period of two consecutive years, individuals who at the

beginning of such period constituted the Board of Directors […] (together

with any new directors whose election to such board or whose nomination

for election by the stockholders of the […] was approved by a vote of 66

2/3% of the directors then still in office who were either directors at the

beginning of such period or whose election or nomination for election was

previously so approved), cease for any reason to constitute a majority of

such Board of Directors then in office”




33

• As the SandRidge board itself acknowledged, it could negate the risk

posed by the proxy put by approving the dissident nominees, thereby

averting a “change of control” that would trigger the proxy put

• Gerald Kallick, a SandRidge stockholder unaffiliated with TPG-Axon,

initiated litigation on January 7, 2013, seeking a mandatory injunction

ordering the SandRidge board to “approve” TPG-Axon’s nominees for

the limited purpose of neutralizing the effect of the proxy put

• In a Form 8-K filed on February 8, 2013, the SandRidge board made, in the

court’s words, an “about-face,” claiming noteholders would be unlikely to

exercise the put because the notes were trading above the redemption price

• Furthermore, Morgan Stanley, SandRidge’s financial advisor, had offered

to refinance the debt, thus providing the backup financing necessary to

ameliorate the financial risks attributable to approving the TPG-Axon slate




34

• The SandRidge board continued to withhold approval of TPG-Axon’s

slate, citing concern over their supposed lack of relevant experience and

fear that credit would become more difficult to obtain if SandRidge

obtained a reputation for “circumventing” change of control provisions



The SandRidge Case: Decision

35

• Chancellor Strine decided not to apply the Blasius standard of review, but

to apply the intermediate standard of review set forth in Unocal instead

• The court, relying on Amylin, reaffirmed that the duty of loyalty requires the

board to exercise contractually conferred discretion in the best

interests of the corporation and its stockholders, limited only by honoring

its contractual obligations to creditors under the implied covenant of good

faith and fair dealing

• Therefore, “a board that acts in good faith must seek to protect the

stockholders’ ability to make an uncoerced choice of directors.”

• Chancellor Strine held that a board has an affirmative obligation to nullify

a proxy put by approving a dissident slate unless there is a “specific and

substantial risk to the corporation or its creditors posed by the rival

slate”

The Decision


The Healthways Case

Delaware Court of Chancery, October 14, 2014



The Healthways Case: Facts

37

• In 2010, Healthways, Inc. and Sun Trust entered into an amended and

restated revolving credit and term loan agreement that contained a proxy

put

• Subsequently, Healthways came under pressure from stockholders, and,

in 2012, the stockholders approved a precatory proposal to declassify

Healthways’ board. In response, Healthways amended its articles of

incorporation to phase out the staggered board

• Less than two weeks after the 2012 stockholder vote on declassification,

Healthways and SunTrust amended the credit agreement. The amendment

revised the definition of “Continuing Director” to exclude directors

nominated as a result of an actual or threatened proxy contest even if the

board approved such directors (a.k.a. “dead hand feature”)

The Facts



The Healthways Case: Facts (Cont’d)

38

• The amended language of the credit agreement’s proxy put was as

follows:

“Continuing Directors” was defined as: “with respect to any period, any

individuals (A) who were members of the board of directors on the first

day of such period, (B) whose election or nomination to that board was

approved by individuals referred to in clause (A) above constituting at the

time of such election or nomination at least a majority of that board, or (C)

whose election or nomination to that board was approved by individuals

referred to in clauses (A) and (B) above constituting at the time of such

election or nomination at least a majority of that board (excluding, in the

case of both clauses (B) and (C), any individual whose initial

nomination for, or assumption of office as, a member of that board

occurs as a result of an actual or threatened solicitation of proxies

or consents for the election or removal of one or more directors by

any person or group other than a solicitation for the election of one

or more directors by or on behalf of the board of directors)”



The Healthways Case: Facts (Cont’d)

39

• In January 2014, North Tide Capital, a company that owned 11% of

Healthways’ stock, indicated to the Healthways board that it intended to

wage a proxy fight. After negotiation, North Tide gained representation

on the Healthways board. The North Tide directors were not considered

“Continuing Directors” for purposes of the “dead hand” proxy put

• Stockholders of Healthways filed a class action lawsuit against Healthways’

directors and SunTrust, alleging that (1) the directors breached their

fiduciary duties by entering into a credit agreement with a “dead hand”

proxy put and (2) SunTrust aided and abetted these breaches

• The plaintiffs also sought a declaratory judgment that the “proxy put” was

invalid and unenforceable under Delaware law

• The defendants filed motions to dismiss



The Healthways Case: Decision

40

• Fiduciary Duty Claim:

In a bench ruling, Vice Chancellor Laster denied the directors’ motion to

dismiss. In denying the motion, he rejected Healthways’ claim that the

dispute was not ripe because the proxy put had not yet been triggered

The court likened the “dead hand” proxy put to poison pills and deal

protection provisions in merger agreements. It found that the existence

of this provision “necessarily has an effect on people’s decision-

making” about running a proxy contest – a “Sword of Damocles”

Furthermore, the court pointed to the fact that the North Tide directors

were not considered “Continuing Directors” and thus as different for

purposes of the proxy put. In the court’s view, this presented a current

injury

The Decision



The Healthways Case: Decision (Cont’d)

41

The denial of the motion to dismiss does not mean that the adoption of

a dead hand proxy put was a per se breach of fiduciary duty

Rather, the courts emphasized that the facts will need to be developed,

“namely, what the board did or didn’t do or knew or didn’t know and what

the back and forth was, if there was any, with SunTrust”

• Aiding and Abetting Claim:

The court also denied SunTrust’s motion to dismiss on the aiding and

abetting claim

Vice Chancellor Laster stated that the Amylin and SandRidge precedents

put lenders on notice that “dead hand” proxy puts were “highly

suspect” because of their “recognized entrenching effect” and could lead

to a fiduciary duty breach by borrowers



The Healthways Case: Decision (Cont’d)

42

Moreover, the court pointed to the fact that the credit agreement was

amended to include the “dead hand” feature only after there were

threats of a proxy contest by certain stockholders

The court recognized that evidence of an arm’s-length negotiation

generally negates claims for aiding and abetting liability. However,

Vice Chancellor Laster stated that negotiating for the best deal does not

accord a party the privilege afforded to arm’s-length negotiators if they

“take advantage of a conflict of interest that the fiduciary counterparts

on the other side of the negotiating table face”

According to the court, these facts were sufficient at the pleading stage

to show “knowing participation” by SunTrust and therefore sufficient to

survive a motion to dismiss. The court noted that it is possible that

SunTrust did not aid or abet anything and that discovery was needed

to understand whether the “dead hand” proxy put was added in response

to stockholder pressure or for another reason



Executive Summary

43

• Amylin: A board has the power and right to approve an opposing director

slate for purposes of a proxy put if it determines that the dissident nominees

would not be materially adverse to the interests of the corporation or its

stockholders

• SandRidge: A board has an affirmative obligation to approve a dissident

slate unless there is a specific and substantial risk to the corporation or its

creditors posed by the rival slate

• Healthways: Directors who agree to a “dead hand” proxy put may be liable

for breach of fiduciary duty. A lender may be liable for aiding and abetting if it

knowingly participates in these breaches

Summary


III.

Drafting, Negotiation and

Use of Poison Puts

David W. Wicklund


Drafting, Negotiation and Use of Poison Puts

Drafting of Poison Put Provisions

45

“Change of Control” shall mean the occurrence of any of the following:

(1) the direct or indirect sale, lease, transfer, conveyance or other disposition

(other than by way of merger or consolidation), in one or more series of

related transactions, of all or substantially all of the Company’s assets and

the assets of the Company’s subsidiaries, taken as a whole, to any person,

other than the Company or one of its subsidiaries;

(2) the consummation of any transaction (including, without limitation, any merger

or consolidation) the result of which is that any person becomes the

beneficial owner, directly or indirectly, of more than 50% of the

Company’s outstanding voting stock;

(3) the Company consolidates with, or merges with or into, any person, or any

person consolidates with, or merges with or into, the Company;

(4) the adoption of a plan relating to the Company’s liquidation or dissolution;

(5) at any time the Continuing Directors do not constitute a majority of the

Company’s Board of Directors.

A Common “Change of Control” Definition



Drafting of Poison Put Provisions (Cont’d)

46

• “Change of Control” shall mean the occurrence of any of the following: […]


Company's Board of Directors

• “Continuing Directors” shall mean individuals (A) who were members of the

board on the date hereof, (B) whose election or nomination to that board was





election or nomination at least a majority of that board

Basic “Proxy Put”



Without a record that a board obtained tangible economic benefits for the company, or

at a minimum negotiated vigorously to protect the shareholder franchise, a poison put

provision with all of the above listed debtholder/board friendly provisions will come

under heightened scrutiny

47


Component Shareholder Friendly (i.e., narrow change-of-control trigger)

Debtholder/Board Friendly (i.e., broad change-of-control trigger)

Determination

Period

Any 12 month period (or 24 month

period)

Any time since the issuance of the

bonds or closing of the loan

Approval

Threshold

Approval of a majority of the original

directors or subsequent “Continuing

Directors”

Approval of 66-2/3% of the original

directors or subsequent “Continuing

Directors”

“Dead Hand”

Feature

None Any individual whose initial

nomination for or assumption of

office as a director occurred as a

result of an actual or threatened

solicitation of proxies or consents

Primary Proxy Put Drafting Variations




48


(5) [at any time] OR [during any period of [12/24] consecutive months]

the Continuing Directors do not constitute a majority of the Company's Board

of Directors


board [on the date hereof] OR [on the first day of any period of [12/24]

consecutive months], (B) whose election or nomination to that board was





election or nomination at least a majority of that board

Determination Period




49







time of such election or nomination at least [a majority of the directors] OR

[66 ⅔% of the directors] of that board, or (C) whose election or nomination

to that board was approved by individuals referred to in clauses (A) and (B)

above constituting at the time of such election or nomination at least a

majority of that board

Approval Threshold




50










election or nomination at least a majority of that board (excluding, in the

case of both clauses (B) and (C), any individual whose initial

nomination or assumption of office occurs as a result of an actual or

threatened election contest)

“Dead Hand” Feature


• Deterrence against proxy

contests by dissident

shareholders (excludes short

slates)

• Increased marketability of

the debt

• Potentially lower cost of debt

Negotiation of Poison Put Provisions

Company Debtholders

The Interests of Companies and Debtholders


51

• Ability to refinance might be

limited at the time of the

triggering

• Potential disenfranchisement

of shareholders

• Liability exposure for board

Co

ns

of

Pro

xy P

ut

Pro

s

of

Pro

xy P

ut • Ability to re-evaluate

investment in the event of a

board turnover

• Protection against potential

downgrade of the debt

P

ros

of

Pro

xy P

ut

• Liability exposure for

underwriters and arrangers

• Reputational risk for

underwriters and arrangers

Co

ns

of

Pro

xy P

ut


• Mega and large cap IG

bonds often do not an have

any CoC provisions

• IG bonds with CoC typically

(1) exclude the “proxy put”

prong and (2) use a “double

trigger” (ratings downgrade)

• Credit agreements typically include CoC

provisions

• Most CoC provisions include the “proxy

put” prong

• Certain lenders are pushing hard for the

“dead hand” feature in light of the

current shareholder activism wave and

the large number of settlements

• By contrast, other lenders shy away from

the “dead hand” feature due to the

potential liability post-Healthways

Negotiation of Poison Put Provisions (Cont’d)

Bonds Credit Facilities

Current Market Dynamics


52

• HY bonds issues typically

include CoC provisions

• However, new HY bond

issues typically exclude the

“proxy put” prong (at least for

first time issuers)

Hig

h-Y

ield

Bo

nd

s

Investm

en

t

Gra

de

Bo

nd

s


• Companies should be cautious about using the specter of a debt default as

an argument for shareholders to vote in favor of the incumbent directors

• If requested, a board should approve a dissident slate unless there is a

specific and substantial threat to the company

• If the approval of a dissident slate is not in the company’s best interests, the

board should maintain a consistent message regarding its reasons for not

approving the slate and provide tangible evidence of the potential threat

• A board should not amend a poison put in a way that makes it more board

friendly once a proxy contest is pending, threatened or expected

• If a company’s debt includes a “dead hand” feature, the board should

consider requesting a waiver or amendment, and the trustee or administrative

agent should consider the liability risk in evaluating such request

Use of Poison Put Provisions

How to use Proxy Puts in Proxy Contests

A board’s contractual obligations to debtholders are limited,

but its fiduciary obligations to shareholders are omnipresent

53



Muir Paterson

Muir is a senior member of the Mergers & Acquisitions Group, focused on advising clients

globally on how to prepare for and respond to shareholder activism and hostile mergers and

acquisition.

Prior to joining the firm, Muir worked at Wellington Management Company, where he served as

director of corporate governance and was responsible for governance analytics, proxy voting

and company engagement. Before that, he was co-head of the M&A and Proxy Fight Research

Group at Institutional Shareholder Services (ISS), where he co-created the M&A Edge suite of

products to provide analysis and voting recommendations on M&A and shareholder activism.

During this period, Muir also served on ISS’ Global Policy Committee. Prior to ISS, Muir held

various M&A investment banking positions in London, Hong Kong and New York.

Muir earned an LLB (First Class Honours) in Law from The University of Edinburgh in 1994, and

is a CFA charterholder.

Managing Director

New York

781.369.0430

[email protected]

Presenter Bios

Muir Paterson

54



Kai is the head of Vinson & Elkins’ Shareholder Activism Response Team and a corporate

partner with more than decade of experience practicing in Houston, New York, London,

Duesseldorf, Hong Kong and Tokyo. He has extensive experience advising both target

companies and activists on shareholder activism campaigns, including proxy contests and just

vote no campaigns. Moreover, he advises domestic and international companies, as well as

financial advisors, in connection with public and private mergers and acquisitions.

Kai holds a Ph.D., magna cum laude, from Freiburg University; an Executive MBA, summa cum

laude (best of his class) from Münster Business School; and an LL.M., James Kent Scholar,

from Columbia Law School. He is admitted to practice in New York, Texas and Germany.

Select Representative Experience

• Conn’s in connection with activist activity by Luxor Capital and Greenlight Capital

• Dakota Plains in connection with activist activity by Lone Star Value

• Endeavour International in its proxy contest defense against the Talisman Group

• Miller Energy in its proxy contest defense against Bristol Capital and Lone Star Value

• Gastar Exploration in connection with activist activity by Kleinheinz Capital Partners

• Crest Financial in its proxy contest against the $6 billion Clearwire-Sprint merger

• Oil States in connection with activist activity by JANA Partners

• Endeavor in connection with activist activity by Steelhead, O-Cap and Lone Star Value

• Oiltanking Partners in its $6 billion sale to Enterprise Products

• C&J Energy in its $2.86 billion merger with Nabors’ completion and production businesses

• Energy XXI in its $2.3 billion acquisition of EPL Oil & Gas

• Inergy in its $8 billion merger with Crestwood (2nd largest 2013 energy deal)

• Evercore in Kinder Morgan’s $38.5 billion acquisition of El Paso (largest 2011 M&A deal)

• Westlake Chemical in its unsolicited $1.2 billion takeover offer for Georgia Gulf

• Plains All American in its unsolicited $1 billion takeover offer for SemGroup

Partner

Houston

713.758.3839

[email protected]

Presenter Bios


55


David W. Wicklund

David is a partner based in the New York office and is a member of the firm’s Finance Practice

Group. David’s practice focuses primarily on complex acquisition and leveraged financings.

David has experience representing private equity sponsors and their portfolio companies and

other public and private borrowers (both investment grade and non-investment grade) in a

variety of domestic and cross-border financings, in the context of acquisitions and otherwise.

David’s experience extends to the areas of syndicated loans, high-yield bond offerings, asset-

based facilities and uni-tranche facilities. He also has significant experience representing

lenders in connection with mezzanine financings.

David holds a J.D. from Georgetown University Law Center and a B.A. from Williams College.

He is admitted to practice in New York.

Select Representative Experience

• Targa Resources Partners and Targa Resources Corp. in a secured acquisition financing in

furtherance of the acquisition of Atlas Energy and Atlas Pipeline Partners in a transaction

valued at $7.7 billion

• TPG Capital in the financing of the $1.8 billion acquisition of natural gas properties in

Wyoming’s Jonah field from Encana Corporation

• Energy XXI in the financing of the $2.3 billion acquisition of EPL Oil & Gas, Inc., creating the

largest publicly traded independent producer on the Gulf of Mexico shelf

• The Carlyle Group in its $3.3 billion acquisition of Getty Images

• Privately held corporation in its $6 billion acquisition of an NYSE-listed global manufacturer

and supplier of consumer food and beverage packaging and storage products

• Private equity firm in its $1.9 billion acquisition of a provider of technology and strategic

consulting services

• Private equity firms in their $1.1 billion acquisition of a claims management services

company

Partner

New York

212.237.0021

[email protected]

Presenter Bios

David W. Wicklund

56

Documents

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