A number of recent contested proxy situations have highlighted so-called “proxy put” provisions in companies’ debt instruments. These provisions (also referred to as “poison puts”) provide that a change in the majority of a company’s directors without the approval of the sitting board will constitute a change of control and, typically, an event of default. As a result, the company’s debt may be accelerated (most common in credit agreements) or the company may be required to offer to repurchase its debt at a premium (most often in bond indentures). If these provisions are triggered, the company may face the unwelcome choice between refinancing its accelerated debt on possibly unfavorable terms or suffering a liquidity crisis.
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