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Kallick v. Sandridge Energy, Inc.

Court of Chancery of Delaware, New Castle

March 7, 2013, Submitted; March 8, 2013, Decided

C.A. No. 8182-CS

Opinion

 [*244]  STRINE, Chancellor.

The incumbent management and board of SandRidge Energy, an oil and natural gas business focusing on domestic exploration and production, face a serious proxy fight. A hedge fund, TPG-Axon ("TPG"), which holds a 7% stake in SandRidge, has launched a consent solicitation to destagger SandRidge's seven-member board by amending the company's bylaws, 1 remove all the directors, and install its own slate. 2 TPG claims that SandRidge's performance has been abysmal during  [**2] the past six years, resulting in a performance that is extremely poor in comparison to other U.S. oil and gas companies. 3 TPG also alleges that, during the same period, SandRidge's incumbent board has lavished compensation on the corporation's CEO, Tom Ward, paying him $150 million despite the company's subpar performance. 4

By its consent solicitation, TPG wishes to seat a new SandRidge board majority that has committed to change the management of the company and explore strategic alternatives for the company, including an asset sale.  [**3] 5 The incumbent board, whose members, along with SandRidge, are the defendants in this action, has resisted the consent solicitation and has energetically campaigned to convince SandRidge's stockholders not to give consents to TPG. Even further, it has tried to obtain revocations from stockholders who have given TPG consents. 6 The incumbent board contends that TPG's slate is less qualified to run SandRidge than it is because TPG's nominees lack expertise in "upstream" oil and gas exploration and have no specific experience with the company's principal asset, a 2.2 million acre oil and gas play in Kansas and Oklahoma (the "Mississippian Play"). 7

For present purposes, what is most relevant is that in originally opposing the consent solicitation, the incumbent board warned the stockholders that the election of TPG's proposed slate would constitute a "Change of Control" for the purposes of SandRidge's credit agreements simply because it involved the election of a new board majority not approved by the incumbent board,  [**4] and that such a Change of Control would trigger the requirement in SandRidge's note indentures that SandRidge offer to repurchase its existing debt (the "Proxy Put"). 8 That is, the incumbent  [*245]  board clearly told stockholders that if they chose to elect a new board majority, the Proxy Put would cause a material economic harm because SandRidge's lenders would have the right to put $4.3 billion worth of notes back to the company.

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68 A.3d 242 *; 2013 Del. Ch. LEXIS 63 **; 2013 WL 2631469

GERALD KALLICK, on behalf of himself and all other similarly situated stockholders, Plaintiff, v. SANDRIDGE ENERGY, INC., a Delaware Corporation, TOM L. WARD, JIM J. BREWER, EVERETT R. DOBSON, WILLIAM A. GILLILAND, DANIEL W. JORDAN, ROY T. OLIVER, JR., and JEFFREY S. SEROTA, Defendants.

CORE TERMS

incumbent, slate, Proxy, stockholders, approve, solicitation, Energy, election, revocations, purposes, indentures, nominees, hedge, triggering, billion, good faith, lenders, fiduciary duty, refinancing, shareholder, financing, preliminary injunction, contest, replace, plans, contractual, noteholders, provisions, leverage, senior

Civil Procedure, Remedies, Injunctions, Preliminary & Temporary Injunctions, Business & Corporate Law, Corporate Governance, Shareholders, General Overview, Directors & Officers, Management Duties & Liabilities, Preliminary Considerations, Equity, Scope of Authority, Discretion, Appeals, Standards of Review, Contracts Law, Contract Conditions & Provisions, Mergers & Acquisitions Law, Takeovers & Tender Offers, Duties & Liabilities of Directors & Officers