In Kallick v. SandRidge Energy, Inc., No. 8182 (Del. Ch. Mar. 8, 2013), the Delaware Court of Chancery rejected an incumbent board’s effort to defend against a proxy fight by using a Proxy − that is, a loan covenant under which the holders of the company’s notes can force the company to repurchase the notes in the event that a new board is elected, if the new board has not been approved by the incumbent board. The case involved a proxy battle brought by a hedge fund, TPG, seeking to unseat the incumbent board of an oil company. In response to the hedge fund’s proxy consent solicitation, the company “told stockholders that if they chose to elect a new board majority, the Proxy Put would cause  material economic harm” to the company because lenders “would have the right to put $4.3 billion worth of notes back to the company.” The court concluded that the incumbent board improperly had failed to exercise its discretion to approve TPG’s board slate — approval that would have eliminated the lenders’ put right. Accordingly, in order to preserve the “stockholders’ right to make a free, uncoerced choice” in the proxy battle, the court held that “the incumbent board should be enjoined from soliciting consent revocations, voting any proxies it received from the consent revocations, and impeding TPG’s consent solicitation in any way until the incumbent board has approved the TPG slate.”
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Board cannot use lenders’ “proxy put” as defense in proxy battle
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