Board Enjoined from Impeding Hostile Consent Solicitation Without First Approving Rival Director Slate under Credit Agreement Proxy Put Provision

The Delaware Chancery Court recently enjoined a board of directors from impeding a stockholder’s solicitation of written consents to replace the board, unless the board first approved the stockholder’s nominees for purposes of a change in control provision in the company’s credit agreements (Kallick v. SandRidge Energy, Inc., March 8, 2013). The court found that the board’s failure to provide that approval, without a “rational, good faith justification,” even while otherwise campaigning against the stockholder’s nominees, would violate the board’s fiduciary duties.

BACKGROUND -

TPG-Axon owned approximately 7% of SandRidge. Dissatisfied with the company’s performance, TPG demanded that the company declassify the board, add stockholder representatives to the board, replace the CEO and explore strategic alternatives.

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