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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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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