Contributions

The Future of Dead-Hand Proxy Puts in Delaware: Alive and Well or Dead on Arrival?

By Caitlin Mil­lat1

The dead-hand fea­ture of a proxy put has been one of cor­po­rate law’s most debat­ed top­ics of late, as lit­i­ga­tion con­cern­ing dead-hands has caused con­fu­sion among com­pa­nies, lawyers, and judges alike.2 These fea­tures per­mit cred­i­tors imme­di­ate­ly to accel­er­ate debt once the major­i­ty of a board is com­prised of non-con­tin­u­ing direc­tors.3 How­ev­er, the addi­tion of fea­tures like a dead-hand – which pro­vides that any new direc­tor elect­ed through a proxy con­test is a non-con­tin­u­ing direc­tor, regard­less of board approval – has caused a flur­ry of lit­i­ga­tion.4

In Health­ways I, the most sig­nif­i­cant recent case law regard­ing dead-hand pro­vi­sions, the Delaware Court of Chancery denied a motion to dis­miss and held that banks could poten­tial­ly be liable for aid­ing and abet­ting a creditor’s breach of loy­al­ty due to the inclu­sion of a dead-hand.5 Health­ways I opened the flood­gates for plain­tiffs’ lawyers to chal­lenge dead-hand fea­tures, leav­ing com­pa­nies and courts alike to make sense of whether dead-hands sub­ject cor­po­ra­tions to lia­bil­i­ty for a vio­la­tion of the duties of care or loy­al­ty.6 Delaware courts have also held that the Uno­cal inter­me­di­ate stan­dard of review should be applied to review of dead-hand puts.7

This arti­cle will argue that a dead-hand proxy put adopt­ed by a board of direc­tors before the threat of takeover should be eval­u­at­ed under the busi­ness judg­ment rule, not the Uno­cal stan­dard of enhanced scruti­ny, and, as such, is gen­er­al­ly legal­ly valid when direc­tors are dis­in­ter­est­ed. This arti­cle will also argue that there is and has been no per se rule against dead-hand fea­tures in the Delaware courts, and that case law pur­port­ed­ly strik­ing these pro­vi­sions is fac­tu­al­ly unique and inap­plic­a­ble to dead-hands adopt­ed before a takeover threat.

* * * * *

Delaware courts have long held that the pro­tec­tion afford­ed by the busi­ness judg­ment rule is far-reach­ing and that, as long as direc­tors remain dis­in­ter­est­ed and have tak­en appro­pri­ate care, their deci­sions are pro­tect­ed.9 When the busi­ness judg­ment rule is invoked, direc­tors’ deci­sions will be upheld absent an “abuse of dis­cre­tion.”10 If the busi­ness judg­ment rule is applied, the pre­sump­tion is that “direc­tors act­ed on an informed basis, in good faith and in the hon­est belief that the action tak­en was in the best inter­est of the com­pa­ny.”11 When the busi­ness judg­ment rule applies, the board’s deci­sions “will not be dis­turbed if they can be attrib­uted to any ratio­nal busi­ness pur­pose.”12 The busi­ness judg­ment rule is avail­able even when orga­ni­za­tions face a takeover threat, but orga­ni­za­tions must first clear the hur­dle pre­scribed in Uno­cal because of the “omnipresent specter that a board may be act­ing pri­mar­i­ly in its own inter­ests, rather than those of the cor­po­ra­tion and its share­hold­ers .…”13 Under Uno­cal, the busi­ness judg­ment rule may be applied in takeover sit­u­a­tions only after direc­tors have estab­lished “rea­son­able grounds for believ­ing that a dan­ger to cor­po­rate pol­i­cy and effec­tive­ness exist­ed because of anoth­er person’s stock own­er­ship.”14

In the con­text of dead-hand proxy puts, how­ev­er, courts have debat­ed how broad­ly the busi­ness judg­ment rule applies and whether the inclu­sion of a dead-hand fea­ture con­sti­tutes a vio­la­tion of fidu­cia­ry duties, even when the dead-hand was adopt­ed before an exist­ing takeover threat.15 But Delaware courts have not con­clu­sive­ly ruled on mea­sures such as proxy puts with a dead-hand fea­ture when adopt­ed pri­or to a threat, and these pro­vi­sions remain legal­ly valid.16

The Delaware Court of Chancery has held that when mea­sures such as dead-hand proxy puts are adopt­ed in response to a takeover bid or in the shad­ow of a threat, the Uno­cal test is the appro­pri­ate stan­dard of review.17 How­ev­er, the Court of Chancery held in Doskocil Cos. v. Grig­gy that, because, in part, defen­dant direc­tors nei­ther asked for nor want­ed the put pro­vi­sion at issue in the case, the Uno­cal stan­dard was inap­plic­a­ble, and busi­ness judg­ment should instead be used to eval­u­ate defendant’s adop­tion of the pro­vi­sion.18 Indeed, in Uno­cal, the court artic­u­lat­ed that the analy­sis comes into play only when a board is “address[ing] a pend­ing takeover bid .…”19 Hence, as the Delaware Court of Chancery explained in Sham­rock Hold­ings, Inc. v. Polaroid Corp., the Uno­cal analy­sis “starts from the premise that the board action at issue was defen­sive.”20

Sev­er­al Delaware cas­es give cri­te­ria for what makes an action a defen­sive mea­sure under Uno­cal. One key cri­te­ri­on is the tim­ing of a chal­lenged board deci­sion. If the deci­sion to imple­ment a mea­sure was planned or dis­cussed before a Sched­ule 13D was filed, this can weigh against see­ing the mea­sure as defen­sive under Uno­cal.21 Sched­ule 13Ds must be sub­mit­ted to the U.S. Secu­ri­ties and Exchange Com­mis­sion (“SEC”) with­in 10 days when a per­son or enti­ty acquires ben­e­fi­cial own­er­ship of more than 5 per­cent of a vot­ing class of a corporation’s pub­licly trad­ed equi­ty secu­ri­ties.22 Although the fil­ing of a Sched­ule 13D can sig­nal that the tar­get cor­po­ra­tion may shift into “defen­sive mode,” the Court of Chancery has held that this does not mean all cor­po­rate deci­sions post-fil­ing must be eval­u­at­ed as defen­sive actions.23 Addi­tion­al­ly, the Court of Chancery has pri­mar­i­ly ana­lyzed the deci­sion to adopt the mea­sure – not just the poten­tial effects of that mea­sure – to deter­mine whether the action was pure­ly defen­sive or for a legit­i­mate busi­ness pur­pose.24

The most recent and sig­nif­i­cant case law com­ing out of Delaware, Health­ways I, square­ly dealt with the issue of tim­ing in regards to whether dead-hand fea­tures should be struck.25 In Health­ways I, the court declined to dis­miss plaintiff’s alle­ga­tions that the board of direc­tors breached its fidu­cia­ry duties when it includ­ed a dead-hand pro­vi­sion in its cred­it agree­ment.26 In his rul­ing, Vice Chan­cel­lor Laster deter­mined that the dead-hand proxy put’s exis­tence – even if it were nev­er trig­gered – cre­at­ed a “Sword of Damo­cles” effect on share­hold­ers.27 Vice Chan­cel­lor Laster fur­ther called the dead-hand a “high­ly sus­pect” device that could leave the board pow­er­less to stop the trig­ger­ing of a proxy put.28 Because of this, share­hold­ers could be strong-armed: run a proxy con­test and risk trig­ger­ing the dead-hand fea­ture, or accept the exist­ing board of direc­tors as-is.

Impor­tant­ly, Health­ways I turned on intense­ly case-spe­cif­ic facts, most notably the tim­ing of the dead-hand. The dead-hand at issue was adopt­ed mere days after stock­hold­ers vot­ed to destag­ger the board, which itself threat­ened the exist­ing board mem­bers’ chances to remain in office.29 Vice Chan­cel­lor Laster empha­sized this point when he clar­i­fied his Health­ways I deci­sion in a sec­ond bench rul­ing in 2015. Call­ing the rul­ing “fre­quent­ly mis­un­der­stood,” he stat­ed that it “can’t be stressed enough” that his hold­ing only applied to pro­vi­sions “adopt­ed in the shad­ow of a proxy con­test,” – not “any change-in-con­trol pro­vi­sion.”30 Under this analy­sis, a dead-hand fea­ture built into a proxy put years before a takeover threat should not trig­ger Uno­cal review because it would lack the defen­sive tim­ing com­mon­ly asso­ci­at­ed with takeover attempts, and would like­ly be in place before the fil­ing of a Sched­ule 13D. There­fore, such a dead-hand would not appear as a delib­er­ate attempt to entrench the board.

Under the busi­ness judg­ment rule, the applic­a­ble stan­dard in fac­tu­al sce­nar­ios with­out evi­dence of self-deal­ing, dead-hand fea­tures are pre­sump­tive­ly valid because there may be a legit­i­mate busi­ness pur­pose for the pro­vi­sion: they pro­tect cred­i­tors’ inter­ests in know­ing their bor­row­ers and build con­fi­dence in the sta­bil­i­ty of the loan. Dead-hand proxy puts of this kind are not uni­lat­er­al­ly adopt­ed by the board of direc­tors; they are often nego­ti­at­ed with third-par­ty lenders to incen­tivize bet­ter deals on loans.32 The Court of Chancery’s jurispru­dence on this issue is lim­it­ed, but it held in Health­ways I that the com­mon­ly held “know-your-bor­row­er” ratio­nale is part of a “fun­da­men­tal belief that lenders like to know who their bor­row­ers are.”33

Indeed, research con­duct­ed on dead-hand proxy put pro­vi­sions demon­strates legit­i­mate busi­ness rea­sons for using dead-hands in debt agree­ments. One study found that a dead-hand can “reduce[] the cost of debt by approx­i­mate­ly 50 basis points.”34 The study also indi­cates that bond­hold­ers ben­e­fit and that share­hold­ers are not sig­nif­i­cant­ly harmed by such a pro­vi­sion.35

In spite of this, the Court of Chancery has found that fea­tures like dead-hands may not always sur­vive a busi­ness judg­ment inquiry if the board has not ful­ly informed itself of their exis­tence.36 In San Anto­nio Fire & Police Pen­sion Fund v. Amylin Phar­ma­ceu­ti­cals, Inc., Chancery said that the board should take all pre­cau­tions to become aware of, and mean­ing­ful­ly become informed about, a dead-hand put.37 Indeed, the court cau­tioned in Amylin that a “court would want, at a min­i­mum, to see evi­dence that the board believed in good faith that, in accept­ing [a proxy put], it was obtain­ing in return extra­or­di­nar­i­ly valu­able eco­nom­ic ben­e­fits for the cor­po­ra­tion that would not oth­er­wise be avail­able to it.”38 Addi­tion­al­ly, the court held in Kallick v. San­dridge Inc. that com­pa­nies should “bar­gain hard to exclude that toll on the stock­hold­er fran­chise and only accede to the Proxy Put after hard nego­ti­a­tion and only for clear eco­nom­ic advan­tage.”39

But no Delaware court has ever held that boards must become aware in order to avoid lia­bil­i­ty; the Amylin hold­ing may also be read as a warn­ing about dead-hands that stops just short of strik­ing them. The law under Amylin mere­ly requires that direc­tors act in good faith in using dead-hands and take rea­son­able steps to inform them­selves about the put.40 Indeed, it’s well-estab­lished that a direc­tor need not read every word of “every con­tract or legal doc­u­ment he or she approves.”41

* * * * *

Though it has come close, Delaware courts have cho­sen on sev­er­al occa­sions not to strike dead-hand proxy puts, and dead-hands are, as the law stands now, a legal­ly valid option for cor­po­ra­tions – with some con­di­tions.42 Indeed, direc­tors of cor­po­ra­tions that include dead-hand fea­tures in agree­ments should pro­ceed cau­tious­ly after the clear warn­ing from Delaware courts that they are on “notice” that these such pro­vi­sions are “high­ly sus­pect” and could poten­tial­ly lead to breach of duty claims.43 Addi­tion­al­ly, after Health­ways I, the tim­ing of the dead-hand is cru­cial; cor­po­ra­tions that adopt a dead-hand proxy put in the shad­ow of a takeover sit­u­a­tion could be sub­ject to a Uno­cal inquiry if courts find the move to be defen­sive in nature.44

In spite of this, it must be acknowl­edged that dead-hands are risky and can put the share­hold­er fran­chise in jeop­ardy.45 Delaware courts have expressed con­tempt toward pro­vi­sions like dead-hands, call­ing them “cat­a­stroph­ic”46 to share­hold­ers and cit­ing the “trou­bling real­i­ty that cor­po­ra­tions and their coun­sel rou­tine­ly nego­ti­ate con­tract terms that may, in some cir­cum­stance, impinge on the free exer­cise of the stock­hold­er fran­chise.”47 Though there is a long­stand­ing tra­di­tion of pro­tect­ing direc­tors’ deci­sions with the busi­ness judg­ment rule, there exists also the bedrock prin­ci­ple of share­hold­er pro­tec­tion that is baked into the foun­da­tion of cor­po­ra­tions law.48 As it weighs this bal­ance, Delaware courts may con­tin­ue to tight­en restric­tions on dead-hand proxy puts. Until that point, how­ev­er, these pro­vi­sions remain legal­ly valid exten­sions of a board’s busi­ness judg­ment, pro­vid­ed that direc­tors take heed of a dead-hand’s terms.

Notes:

1. Caitlin Mil­lat is a 3L at New York Uni­ver­si­ty School of Law. This piece is a com­men­tary on the 2017 Prob­lem at the Ruby R. Vale Inter­school Cor­po­rate Moot Court Com­pe­ti­tion held in Wilm­ing­ton, Delaware. The issue in the prob­lem dealt with a cor­po­ra­tion that had writ­ten a dead-hand proxy put into its char­ter sev­er­al years before a takeover threat emerged and the sub­se­quent share­hold­er lit­i­ga­tion that com­menced. The views expressed in this arti­cle do not nec­es­sar­i­ly rep­re­sent the views of the author on this point. Rather, this arti­cle is a dis­til­la­tion of one side of an argu­ment assigned to the team the author rep­re­sent­ed at the Vale Inter­school Cor­po­rate Moot Court Com­pe­ti­tion. For anoth­er com­men­tary from this com­pe­ti­tion, see Chal­leng­ing USACafes Lia­bil­i­ty of a Fidu­cia­ry Entity’s Con­trollers  by Natal­ie Noble.
2. See, e.g., Pick­er­ing Bom­ba et al., “Dead Hand Proxy Puts” – What you Need to Know, Fried Frank M&A Brief­ing 1 (2015), http://www.friedfrank.com/siteFiles/Publications/FINAL%20-%206–5-2015%20-%20Dead_Hand_Proxy_Puts_What_You_Need_to_Know.pdf (“There has been much recent con­cern and con­fu­sion over the inclu­sion of ‘dead hand proxy puts’ … in debt agree­ments.”).
3. T. Brad Dav­ey & Christo­pher N. Kel­ly, Dead Hand Proxy Puts Face Con­tin­ued Scruti­ny, Bloomberg BNA Corp. L. & Account­abil­i­ty Rep. 1 (June 5, 2015), http://www.potteranderson.com/media/publication/670_TBD%20CNK%20Dead%20Hand%20Proxy%20Puts%20Face%20Continued%20Scrutiny%20Bloomberg%20BNA%206%205%2015.pdf.
4. See, e.g., San Anto­nio Fire & Police Pen­sion Fund v. Amylin Pharms., Inc., 983 A.2d 1173 (Del. 2009); see gen­er­al­ly Pon­ti­ac Gen. Emps. Ret. Sys. v. Bal­lan­tine (Health­ways I), C.A. No. 9789-VCL (Del. Ch. Oct. 14, 2014) (tran­script rul­ing) (hold­ing that plaintiff’s com­plaint assert­ing a claim for aid­ing and abet­ting against Sun­Trust for being a “par­ty to an agree­ment con­tain­ing an entrench­ing pro­vi­sion that cre­ates a con­flict of inter­est on the part of the fidu­cia­ries on the oth­er side of the nego­ti­a­tion.”).
5. See Health­ways I (Tr. 80) (“I believe that, as pled, this com­plaint sat­is­fies the motion to dis­miss.”).
6. T. Brad Dav­ey & Christo­pher N. Kel­ly, supra note 3, at 1 (“Dead hand proxy puts have emerged as the tar­get du jour for entre­pre­neur­ial plain­tiffs coun­sel lit­i­gat­ing cor­po­rate gov­er­nance claims.”).
7. See, e.g., Kallick v. San­dridge Ener­gy, Inc., 68 A.3d 242, 247–48 (Del. Ch. 2013) (apply­ing the Uno­cal stan­dard of review to con­clude San­dridge Ener­gy vio­lat­ed its duties when fail­ing to approve a dis­si­dent slate). Under Uno­cal, when a board is address­ing a pend­ing takeover bid, a height­ened lev­el of scruti­ny applies because of the “omnipresent specter” of a board attempt at entrench­ment. Uno­cal Corp v. Mesa Petro­le­um Co., 493 A.2d 946, 954 (Del. 1985). This requires boards to show that their actions were “rea­son­able in rela­tion to the threat posed” and not coer­cive. Id. at 955.
8. See gen­er­al­ly Uno­cal, 493 A.2d 946.
9. See, e.g., Sin­clair Oil Corp. v. Levien, 280 A.2d 717, 720 (1971) (under the busi­ness judg­ment rule, “a court will not inter­fere with the judg­ment of a board of direc­tors unless there is a show­ing of gross and pal­pa­ble over­reach­ing.”).
10. Aron­son v. Lewis, 473 A.2d 805, 812 (Del. 1984) (“Absent an abuse of dis­cre­tion, that [busi­ness] judg­ment will be respect­ed by the courts.”).
11. Id.
12. Sin­clair Oil, 280 A.2d at 720.
13. Uno­cal, 493 A.2d at 954.
14. Id. at 955.
15. See, e.g., Pon­ti­ac Gen. Emps. Ret. Sys. v. Bal­lan­tine (Health­ways II), C.A. No. 9789-VCL (Del. Ch. May 8, 2015) (tran­script rul­ing) (Tr. 35) (in which Vice Chan­cel­lor Laster explained that the legal­i­ty of a dead-hand was con­tex­tu­al based on the nar­row facts of the case and that the key to the deci­sion was that it had been adopt­ed “in the shad­ow of a proxy con­test”); Kallick v. San­dridge Ener­gy, Inc., 68 A.3d 242, 258 (Del. Ch. 2013) (apply­ing inter­me­di­ate scruti­ny under Uno­cal to con­clude that the board breached its fidu­cia­ry duties to its stock­hold­ers, hold­ing that “Uno­cal is the prop­er stan­dard of review to exam­ine a board’s deci­sion to agree to a con­tract with [dead-hand] pro­vi­sions and to review a board’s exer­cise of dis­cre­tion as to the change of con­trol pro­vi­sions under such a con­tract.”); Fire and Police Fund San Anto­nio v. Stanzione, C.A. No. 10078-VCG (Del. Ch. Feb. 25, 2015) (tran­script rul­ing) (Tr. 7–8) (“as our case law describ­ing the use of sim­i­lar proxy puts as prob­lem­at­ic becomes more devel­oped, the val­ue of remov­ing such a device decreas­es. The sit­u­a­tion begins to be less like chain­ing up a vicious bull­dog and more like chain­ing up a tooth­less bull­dog.”).
16. See, e.g., Pon­ti­ac Gen. Emps. Ret. Sys. v. Bal­lan­tine (Health­ways I), C.A. No. 9789-VCL (Del. Ch. Oct. 14, 2014) (tran­script rul­ing) (Tr. 76) (“No one is sug­gest­ing [this is a per se analy­sis]. Nor does the denial of the motion to dis­miss depend on any the­o­ry that enter­ing into an agree­ment that con­tains a proxy put is a per se breach of fidu­cia­ry duty.”).
17. See, e.g., Kallick, 68 A.3d at 258 (hold­ing that for claus­es with defen­sive val­ue such as proxy puts adopt­ed in the shad­ow of a takeover, “Uno­cal is the prop­er stan­dard of review to exam­ine a board’s deci­sion to agree to a con­tract with such pro­vi­sions.”).
18. Doskocil Cos. v. Grig­gy, No. CIV.A. 10,095, 1988 WL 85491, at *6 (Del. Ch. Aug. 18, 1988) (hold­ing that a plan that was reac­ti­vat­ed sev­er­al months pri­or to a poten­tial threat and had been under con­sid­er­a­tion for over a year could be explained by the “con­di­tion of the mar­ket” and there­fore, even if defen­dant direc­tors were oper­at­ing in a “defen­sive mode,” it would not “nec­es­sar­i­ly fol­low that oth­er cor­po­rate deci­sions were also made in response to a per­ceived takeover threat.”).
19. Uno­cal Corp. v. Mesa Petro­le­um Co., 493 A.2d 946, 954 (Del. 1985).
20. Sham­rock Hold­ings, Inc. v. Polaroid Corp., 559 A.2d 257, 271 (Del. Ch. 1989) (hold­ing that adopt­ing employ­ee stock own­er­ship plan sev­er­al months after a takeover threat was posed was entire­ly fair because the plan had been in devel­op­ment pri­or to the threat).
21. See Doskocil, 1988 WL 85491 at *5 (“The adop­tion of a Rights Plan with­in a few weeks after the Sched­ule 13Ds were filed … strong­ly sug­gest that the defen­dant direc­tors were oper­at­ing in a defen­sive mode.”).
22. 17 C.F.R. § 240.13d-1(a).
23. See Doskocil, 1988 WL 85491 at *6 (“How­ev­er, even assum­ing that the Rights Plan was adopt­ed as a defen­sive mea­sure, it does not nec­es­sar­i­ly fol­low that oth­er cor­po­rate deci­sions were also made in response to a per­ceived takeover threat.”).
24. See, e.g., Hen­ley Grp., Inc. v. San­ta Fe S. Pac. Corp., No. CIV.A. 9569, 1988 WL 23945, at *13 (Del. Ch. Mar. 11, 1988) (decid­ing whether Uno­cal applied to the deci­sion to adopt a par­tic­u­lar deben­ture by ana­lyz­ing when plan­ning began on the deben­ture, how the deben­ture fit into oth­er, exist­ing plans, and, among oth­er rea­sons, if the restruc­tur­ing could have been accom­plished with­out the deben­ture).
25. See gen­er­al­ly Pon­ti­ac Gen. Emps. Ret. Sys. v. Bal­lan­tine (Health­ways I), C.A. No. 9789-VCL (Del. Ch. Oct. 14, 2014) (tran­script rul­ing).
26. See id. at 80–81.
27 Id. at 80.
28 Id.
29 Id. at 45 (“on May 31st, 2012, Health­ways’ share­hold­ers, over the boar’s objec­tion, vot­ed to destag­ger the board. Nine days lat­er, Health­ways adopts the dead hand pro­vi­sion.”)
30. Pon­ti­ac Gen. Emps. Ret. Sys. v. Bal­lan­tine (Health­ways II), C.A. No. 9789-VCL (Del. Ch. May 8, 2015) (Tr. 36); see also id. at 35 (the rul­ing on the pre­vi­ous motion to dis­miss was a “con­tex­tu­al rul­ing based on the facts of the case”; the court also refused to grant the motion to dis­miss was because the dead-hand was adopt­ed “in the shad­ow of a proxy con­test.”).
31. See, e.g., Aron­son v. Lewis, 473 A.2d 805, 812 (Del. 1984) (busi­ness judg­ment rule pro­tects “dis­in­ter­est­ed direc­tors whose con­duct oth­er­wise meets the tests of busi­ness judg­ment[,]” i.e. the “direc­tors can nei­ther appear on both sides of a trans­ac­tion nor expect to derive any per­son­al finan­cial ben­e­fit from it in the sense of self-deal­ing, as opposed to a ben­e­fit which devolves upon the cor­po­ra­tion or all stock­hold­ers gen­er­al­ly.”).
32. See T. Brad Dav­ey & Christo­pher N. Kel­ly, supra note 3, at 2.
33. Health­ways I (Tr. 28).
34. Sean J. Grif­fith & Natalia Reisel, Dead Hand Proxy Puts, Hedge Fund Activism, and the Cost of Cap­i­tal 6 (man­u­script of Dec. 17, 2016), avail­able at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2799491; see also id. at 23 (“Although the pre­cise amount of sav­ings varies with each spec­i­fi­ca­tion, we con­sis­tent­ly find that Dead Hand Proxy Puts pro­vide a ben­e­fit to cor­po­ra­tions by reduc­ing the cost of debt.”).
35. Id. at 23 (“we find evi­dence that bond­hold­ers ben­e­fit from the inclu­sion of the pro­vi­sion in loan agree­ments, and we find no evi­dence that share­hold­ers are harmed by the pro­vi­sion.”).
36. See, e.g., San Anto­nio Fire & Police Pen­sion Fund v. Amylin Pharms., Inc., 983 A.2d 304, 318 (Del. 2009) (acknowl­edg­ing that direc­tors need not read every word of an inden­ture, but specif­i­cal­ly acknowl­edg­ing pro­vi­sions like dead-hand fea­tures to hold that, “specif­i­cal­ly, terms which may affect the stock­hold­ers’ range of dis­cre­tion in exer­cis­ing the fran­chise should, even if con­sid­ered cus­tom­ary, be high­light­ed to the board. In this way, the board will be able to exer­cise its ful­ly informed busi­ness judg­ment.”).
37. Id.
38. Id. at 315.
39. Kallick v. San­dridge Ener­gy, Inc., 68 A.3d 242, 247–48 (Del. Ch. 2013) (explain­ing that the record on whether lenders had “pressed hard” to include such a change of con­trol pro­vi­sion con­tain­ing a proxy put was “nonex­is­tent”).
40. See, e.g., Amylin, 983 A.2d at 318 (hold­ing that a board which retained coun­sel and con­sult­ed with invest­ment bankers as well as inquired if there were any “unusu­al or not cus­tom­ary” pro­vi­sions in the terms of the inden­ture was not gross­ly neg­li­gent when adopt­ing a con­tin­u­ing direc­tors pro­vi­sion akin to a dead-hand).
41. Smith v. Van Gorkom, 488 A.2d 858, 883 n.25 (Del. 1985).
42. See, e.g., Pon­ti­ac Gen. Emps. Ret. Sys. v. Bal­lan­tine (Health­ways II), C.A. No. 9789-VCL, Del. Ch. May 8, 2015) (Tr. 36) (pro­vi­sions adopt­ed in the shad­ow of a takeover threat are more like­ly to be sub­ject to Uno­cal review and breach of duty or aid­ing and abet­ting claims); Kallick, 68 A.3d at 248 (hold­ing that boards should attempt to nego­ti­ate out of includ­ing pro­vi­sions like a dead-hand put); Amylin, 983 A.2d at 315 (the inclu­sion of a proxy put should result in “extra­or­di­nar­i­ly valu­able eco­nom­ic ben­e­fits for the cor­po­ra­tion that would not oth­er­wise be avail­able to it.”).
43. Health­ways I (Tr. 80) (there has been “ample prece­dent from this Court putting lenders on notice that these pro­vi­sions were high­ly sus­pect and could poten­tial­ly lead to a breach of duty on the part of the fidu­cia­ries who were the counter-par­ties to a nego­ti­a­tion over the cred­it agree­ment.”).
44. See gen­er­al­ly id.
45. See Amylin, 983 A.2d at 315 (cit­ing the “evis­cer­at­ing effect on the stock­hold­er fran­chise” that a dead-hand pro­vi­sion could have).
46. Id. at 319.
47. Id.
48. See, e.g., Ham­ble­ton Bros. Lum­ber Co. v. Balkin Enter­pris­es, Inc., 397 F.3d 1217, 1227 (9th Cir. 2005) (“Share­hold­er pro­tec­tion through the cor­po­rate form is ingrained in our eco­nom­ic and legal sys­tems.” (inter­nal quo­ta­tion marks omit­ted)).