in the united states district court northern district...

Case 4:10-cv-00260-JHP-TLW Document 2 Filed in USDC ND/OK on 04/26/2010 of 24

IN THE UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF OKLAHOMA

(1) THOMAS R. STEVENSON, individually )and on behalf of all others similarly situated, )

)Plaintiff, ) Case No.: 10-CV-260 JHP TLW

)v. ) COMPLAINT FOR

) VIOLATIONS OF THE(2) LLOYD ROCHFORD, (3) STANLEY ) FEDERAL SECURITIES LAWSMCCABE, (4) CLAYTON WOODRUM, (5) ) AND FOR STATE LAWCARL FIDDNER, (6) ANTHONY ) BREACHES OF FIDUCIARYPETRELLI, (7) ARENA RESOURCES, INC., ) DUTY(8) SANDRIDGE ENERGY, INC., and (9) )STEEL SUBSIDIARY CORPORATION, ) JURY TRIAL DEMANDED

)Defendants. ) ATTORNEY’S LIEN CLAIMED

COMPLAINT

Plaintiff, by his attorneys, alleges upon information and belief, except for his own acts,

which are alleged on knowledge, as follows:

1. Plaintiff brings this action on behalf of the public stockholders of Arena

Resources, Inc. (“Arena” or the “Company”) against Arena and its Board of Directors (the

“Board”) seeking equitable relief for their violations of Rule 14a-9(a) (“Rule 14a-9”)

promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”), breaches of

fiduciary duty and other violations of state law arising out of their attempt to sell the Company to

SandRidge Energy, Inc. and Steel Subsidiary Corporation (collectively “SandRidge”) by means

of an unfair process, for an unfair price of 4.7771 shares of SandRidge common stock and $2.50

in cash for each share of Arena common stock, and without adequate disclosure (the “Proposed

Transaction”). Based on the closing price of SandRidge common stock the day prior to the


announcement of the Proposed Transaction, the Proposed Transaction is valued at approximately

$1.6 billion.

JURISDICTION AND VENUE

2. The claims asserted herein arise under Section 14(a) of the Exchange Act. This

Court has subject matter jurisdiction pursuant to Section 27 of the Exchange Act [15 U.S.C. §§

78a-78jj] and 28 U.S.C. § 1331. This court has jurisdiction over the state law claims pursuant to

28 U.S.C. §1367.

3. Venue is proper in this District because many of the acts and practices

complained of herein occurred in substantial part in this District. In addition, Arena maintains

their principal executive offices in Tulsa, Oklahoma.

PARTIES

4. Plaintiff is, and has been at all relevant times, the owner of shares of common

stock of Arena.

5. Arena is a corporation organized and existing under the laws of the State of

Nevada. It maintains its principal corporate offices at 6555 South Lewis Street, Tulsa, Oklahoma

74136, and engages in the acquisition, exploration, development, and production of oil and

natural gas properties in Oklahoma, Texas, New Mexico, and Kansas.

6. Defendant Lloyd Rochford (“Rochford”) has been the Chairman of the Board of

the Company since May, 2008. Prior to that time Rochford served as Chief Executive Officer

and a director of the Company since inception in August 2000.

7. Defendant Stanley McCabe (“McCabe”) has been a director of the Company

since 2008.

8. Defendant Clayton Woodrum (“Woodrum”) has been a director of the Company

since 2003.

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9. Defendant Carl Fiddner (“Fiddner”) has been a director of the Company since

2007.

10. Defendant Anthony Petrelli (“Petrelli”) has been a director of the Company since

2007.

11. Defendants referenced in ¶¶ 6 through 10 are collectively referred to as Individual

Defendants and/or the Arena Board. The Individual Defendants as officers and/or directors of

Arena, have a fiduciary relationship with Plaintiff and other public shareholders of Arena and

owe them the highest obligations of good faith, fair dealing, loyalty and due care.

12. Defendant SandRidge Energy, Inc. is a Delaware corporation with its

headquarters located at 123 Robert South Kerr Avenue, Oklahoma City, OK 73102-6406 that

engages in the exploration, development, and production of oil and gas properties in the United

States.

13. Defendant Steel Subsidiary Corporation is a Nevada corporation wholly owned by

SandRidge Energy, Inc. that was created for the purposes of effectuating the Proposed

Transaction.

INDIVIDUAL DEFENDANTS’ FIDUCIARY DUTIES

14. By reason of Individual Defendants’ positions with the Company as officers

and/or directors, they are in a fiduciary relationship with Plaintiff and the other public

shareholders of Arena and owe them, as well as the Company, a duty of highest good faith, fair

dealing, loyalty and full, candid and adequate disclosure, as well as a duty to maximize

shareholder value.

15. Where the officers and/or Directors of a publicly traded corporation undertake a

transaction that will result in either: (i) a change in corporate control; (ii) a break up of the

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corporation’s assets; or (iii) sale of the corporation, the Directors have an affirmative fiduciary

obligation to obtain the highest value reasonably available for the corporation’s shareholders,

and if such transaction will result in a change of corporate control, the shareholders are entitled

to receive a significant premium. To diligently comply with their fiduciary duties, the Directors

and/or officers may not take any action that:

(a) adversely affects the value provided to the corporation’s shareholders;

(b) favors themselves or will discourage or inhibit alternative offers to

purchase control of the corporation or its assets;

(c) contractually prohibits them from complying with their fiduciary duties;

(d) will otherwise adversely affect their duty to search and secure the best

value reasonably available under the circumstances for the corporation’s shareholders; and/or

(e) will provide the Directors and/or officers with preferential treatment at the

expense of, or separate from, the public shareholders.

16. In accordance with their duties of loyalty and good faith, the Individual

Defendants, as directors and/or officers of Arena, are obligated to refrain from:

(a) participating in any transaction where the directors or officers’ loyalties

are divided;

(b) participating in any transaction where the directors or officers receive, or

are entitled to receive, a personal financial benefit not equally shared by the public shareholders

of the corporation; and/or

(c) unjustly enriching themselves at the expense or to the detriment of the

public shareholders.

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17. Plaintiff alleges herein that the Individual Defendants, separately and together, in

connection with the Proposed Transaction are knowingly or recklessly violating their fiduciary

duties, including their duties of loyalty, good faith and independence owed to Plaintiff and other

public shareholders of Arena, or are aiding and abetting others in violating those duties.

18. Defendants also owe the Company’s stockholders a duty of candor, which

includes the disclosure of all material facts concerning the Proposed Transaction and,

particularly, the fairness of the price offered for the stockholders’ equity interest. Defendants are

knowingly or recklessly breaching their fiduciary duties of candor by failing to disclose all

material information concerning the Proposed Transaction, and/or aiding and abetting other

Defendants’ breaches.

CONSPIRACY, AIDING AND ABETTING AND CONCERTED ACTION

19. In committing the wrongful acts alleged herein, each of the Defendants has

pursued, or joined in the pursuit of, a common course of conduct, and acted in concert with and

conspired with one another, in furtherance of their common plan or design. In addition to the

wrongful conduct herein alleged as giving rise to primary liability, the Defendants further aided

and abetted and/or assisted each other in breach of their respective duties as herein alleged.

20. During all relevant times hereto, the Defendants, and each of them, initiated a

course of conduct which was designed to and did: (i) permit SandRidge to attempt to eliminate

the public shareholders’ equity interest in Arena pursuant to a defective sales process, and (ii)

permit SandRidge to buy the Company for an unfair price. In furtherance of this plan, conspiracy

and course of conduct, Defendants, and each of them, took the actions as set forth herein.

21. Each of the Defendants herein aided and abetted and rendered substantial

assistance in the wrongs complained of herein. In taking such actions, as particularized herein,

to substantially assist the commission of the wrongdoing complained of, each Defendant acted

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with knowledge of the primary wrongdoing, substantially assisted the accomplishment of that

wrongdoing, and was aware of his or her overall contribution to, and furtherance of, the

wrongdoing. The Defendants’ acts of aiding and abetting included, inter alia, the acts each of

them are alleged to have committed in furtherance of the conspiracy, common enterprise and

common course of conduct complained of herein.

CLASS ACTION ALLEGATIONS

22. Plaintiff brings this action on its own behalf and as a class action on behalf of all

owners of Arena common stock and their successors in interest, except Defendants and their

affiliates (the “Class”).

23. This action is properly maintainable as a class action for the following reasons:

(a) the Class is so numerous that joinder of all members is impracticable. As

of April 20, 2010, Arena has approximately 38.79 million shares outstanding.

(b) questions of law and fact are common to the Class, including, inter alia,

the following:

(i) Have the Individual Defendants misrepresented and omitted

material facts in violation of Section 14(a) of the Exchange Act;

(ii) Have the Individual Defendants breached their fiduciary duties

owed by them to Plaintiff and the others members of the Class;

(iii) Are the Individual Defendants, in connection with the Proposed

Transaction of Arena by SandRidge, pursuing a course of conduct

that does not maximize Arena’s value in violation of their fiduciary

duties;

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(iv) Have the Individual Defendants misrepresented and omitted

material facts in violation of their fiduciary duties owed by them to

Plaintiff and the other members of the Class;

(v) Have Arena and SandRidge aided and abetted the Individual

Defendants’ breaches of fiduciary duty; and

(vi) Is the Class entitled to injunctive relief or damages as a result of

Defendants’ wrongful conduct.

(c) Plaintiff is committed to prosecuting this action and have retained

competent counsel experienced in litigation of this nature.

(d) Plaintiff’s claims are typical of those of the other members of the Class.

(e) Plaintiff has no interests that are adverse to the Class.

(f) The prosecution of separate actions by individual members of the Class

would create the risk of inconsistent or varying adjudications for individual members of the

Class and of establishing incompatible standards of conduct for Defendants.

(g) Conflicting adjudications for individual members of the Class might as a

practical matter be dispositive of the interests of the other members not parties to the

adjudications or substantially impair or impede their ability to protect their interests.

SUBSTANTIVE ALLEGATIONS

Company Background and its Concentration in Oil

24. Arena is engaged in oil and natural gas acquisition, exploration, development and

production, with activities in Oklahoma, Texas, New Mexico and Kansas.

25. As of its latest Annual Report filed with the United States Securities and

Exchange Commission (“SEC”) on March 1, 2010 (the “Annual Report”), the Company has a

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portfolio of oil and natural gas reserves, with approximately 86% of their proved reserves

consisting of oil and approximately 14% consisting of natural gas.

26. Although the price of natural gas has been falling the past few years, the

Company has not been affected by it due to its main concentration in oil. As can be seen in the

Annual Report, the Company’s production activities, especially in oil, have expanded the past

few years:

Year Ended December 31,2007 2008 2009

Oil production (Bbls) 1,316,025 2,018,335 2,004,498Natural gas production (Mcf) 1,503,611 1,911,713 2,172,790Total production (Boe) 1,566,627 2,336,954 2,366,630Daily production (Boe/d) 4,292 6,385 6,484Average sales price:

Oil (per Bbl) $ 66.89 $ 94.16 $ 57.51Natural gas (per Mcf) 8.02 9.84 5.04

Total (per Boe) 63.89 89.37 53.34

27. On March 2, 2010, the Company announced its results for the fourth quarter of

2009. The Company announced “its 34th consecutive profitable quarter with net income of

$9,279,639 on oil and gas revenues of $42,350,044.” Net cash flow from operations for the three

months ended December 31, 2009 was $31,241,484, or $0.80 per fully diluted share, compared

to net cash flow of $29,373,173, or $0.76 per fully diluted share for the same period in 2008.

28. In the press release announcing the results, Mr. Phil Terry (“Terry”), the

Company’s President & CEO commented on the Company’s strong quarter:

“The fourth quarter was another very positive quarter for ourCompany. Our sales increased in spite of impairments toproduction associated with natural gas and oil purchaser problems.We posted another profitable quarter for our shareholders, whichmarks 34 consecutive quarters of profitable operations. Drillingand completions also increased in the fourth quarter as a result ofadding the fourth rig at Fuhrman-Mascho.”

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Moreover, Terry discussed the bright future that lay ahead for the Company:

“We plan to utilize 4 rigs throughout 2010 in the exploitation ofthe Fuhrman-Mascho potential. We completed our Fuhrman-Mascho crude oil gathering system and pipeline connection whichimproves revenue associated with crude oil sales by eliminatingtrucking charges, and is also a significant operationalimprovement. We finished the quarter and the year with a verystrong balance sheet, which was a primary corporate goal in a yearof dramatic changes in commodity prices. We essentially had justone rig running for the first half of 2009. We have increased our2010 capital expenditure budget to take advantage of improved oilprices. The 2010 budget will support the drilling of 300 or morewells at Fuhrman-Mascho compared to the 176 wells we drilled in2009. We will continue to focus on the development of ourexisting oil assets in the Permian Basin and Oklahoma whichafford the Company and its shareholders significant growthpotential. We will also explore the potential of deeper producinghorizons on existing Fuhrman-Mascho leases and look for newareas of interest in the Permian Basin. We continue to evaluateacquisition and growth opportunities in the Permian Basin andother areas.”

SandRidge’s Poor Performance

29. SandRidge is an independent natural gas and oil company headquartered in

Oklahoma City, Oklahoma concentrating on exploration, development and production activities

related to the exploitation of their holdings in West Texas. Their primary areas of focus are the

West Texas Overthrust (the “WTO”) and the Permian Basin. The WTO is a natural gas-prone

geological region in Pecos County and Terrell County, Texas where SandRidge has operated

since 1986 and currently has 562,626 net acres under lease. In the Permian Basin, SandRidge

controls approximately 138,691 net acres in West Texas and New Mexico.

30. Until recently, SandRidge has focused almost entirely on natural gas.

SandRidge’s CEO, Tom Ward (“Ward”), said that in late 2008, he concluded gas prices were

likely to stay low for years and began looking for oil assets. In September 2009, SandRidge

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made a bid to buy bankrupt oil producer Crusader Energy Group Inc., in a deal that ultimately

fell apart, and in December 2009, SandRidge paid $800 million for West Texas oil assets owned

by Forest Oil Corp.

31. The Proposed Transaction shifts SandRidge further into conventional oil-field

assets amid a continued fall in natural-gas prices. As stated in the Wall Street Journal Online in

an article dated April 5, 2010, discussing the Proposed Transaction, Ward commented on the

bleak future that awaited a company like SandRidge that focused mainly on natural gas. As

stated in the article:

“Starting in late 2008, we felt it would be a hard couple years fornatural gas,” said Mr. Ward.

* * *

Mr. Ward said the move to oil is a matter of economics: Natural-gas prices have fallen 27% so far this year, to $4.086 per millionBritish thermal units, and many experts expect low prices to lastthrough 2010. Oil prices, meanwhile, have rebounded to above $80a barrel, from under $35 a barrel in December 2008.

“It's a transformation from a natural-gas company to a morebalanced portfolio,” Mr. Ward said. “The economics of natural gasjust aren't as good today as they were a few years ago.”

32. Despite its efforts to shift to oil, SandRidge is still largely focused on natural gas.

As stated in an article on seekingalpha.com: “Gas accounted for 85% of SandRidge revenue at

end-2008. Currently, oil represents only 28% of production but accounts for 54% of revenue.”

33. On February 25, 2010, SandRidge announced its results for the full year 2009.

The Company reported tremendous declines from results in 2008, including:

• Adjusted net income available to common stockholders of $139.8 million, or $0.80 pershare, in 2009 compared to adjusted net income available to common stockholders of$142.5 million, or $0.92 per share, in 2008.

• Adjusted EBITDA of $584.0 million compared to $678.2 million in 2008.

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• Operating cash flow of $417.6 million compared to $540.3 million in 2008.

• Net loss applicable to common stockholders of $1.78 billion, or $10.20 per share fullydiluted, attributable to lower natural gas and oil pricing levels during 2009 compared tonet loss applicable to common stockholders of $1.46 billion, or $9.36 per share fullydiluted, in 2008.

34. Moreover, in an article date April 11, 2010 on seekingalpha.com titled

“SandRidge's Acquisition of Arena Resources Masks Deeper Problems”, an analyst, commenting

on the Proposed Transaction, stated that Arena shareholders were being brought into a company,

SandRidge, that, “in its current form has experienced massively negative free cash flow for two

years and has increased its long term debt for three years running, all while its net income turned

severely negative.” As the analyst continues, SandRidge is therefore “betting that the acquisition

of a minor oil producer will mask its own operational difficulties long enough to try to put its

own house in order. [Arena] shareholders are asked to surrender ownership in a marginally

profitable oil driller for shares in a larger company where cash flow, net income, and retained

earnings are all negative.” As the analyst concludes,

The market will gradually come to grips with these risk factors.[SandRidge] closed at $7.85 on Apr. 1, before announcing thisacquisition, and has closed below that price every day since thenwhile its daily trading volume has spiked by 200% to 500%. It'shard not to believe that [SandRidge] is largely in the hands ofarbitrageurs looking for a quick buck. It's just as hard to see how[SandRidge] plans to work its way out of its own operationalproblems. It's very hard to ask [Arena] owners to part with whatthey have in hand now.

The Proposed Transaction Price is Unfair

35. Despite SandRidge’s poor financials and its concentration in natural gas, the

Company agreed to enter into the Proposed Transaction. In a press release dated April 4, 2010,

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the Company announced that it had entered into a merger agreement with SandRidge, stating, in

part:

OKLAHOMA CITY and TULSA, Okla., April 4, 2010/PRNewswire via COMTEX/ — SandRidge Energy, Inc. (NYSE:SD) and Arena Resources, Inc. (NYSE: ARD) today jointlyannounced that they have entered into a definitive mergeragreement under which Arena shareholders will receive stock andcash consideration valued at $40 per share of Arena common stockbased on SandRidge’s April 1 closing price. This represents a 17%premium for Arena shareholders. SandRidge will issue 4.7771shares of SandRidge common stock and pay $2.50 in cash for eachshare of Arena common stock, resulting in a combined enterprisevalue of approximately $6.2 billion. SandRidge will be thesurviving company, headquartered in Oklahoma City and itsmanagement team will continue in their current roles.

The transaction uniquely positions SandRidge as one of the largestproducers of West Texas conventional oil and gas. The oilopportunities will come primarily from drilling and developmentof shallow, low risk reservoirs located on the Central BasinPlatform (“CBP”), a part of the Permian Basin in West Texas. TheCBP has produced over 13 billion barrels of oil since the 1930s.The combined company will have over 200,000 net acres in thePermian Basin and 5,700 identified locations to drill primarily inthe shallow San Andres and the Clear Fork formations. Additionalupside exists with down spacing and future secondary and tertiarypotential. SandRidge also owns low risk natural gas properties inthe Pinon Field, and significant exploration opportunities in theWest Texas Overthrust.

36. Based on the closing price of SandRidge common stock on April 1, 2010, the last

trading day prior to the announcement of the Proposed Transaction, Arena shares were valued at

approximately $40 per share in the Proposed Transaction. The price of SandRidge shares have

dropped during the two weeks following the announcement of the Proposed Transaction. As of

April 19, 2010, based on the closing price of SandRidge shares, Arena Resource shareholders

will receive approximately $35.84 per share in the Proposed Transaction.

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37. In the few months prior to the Proposed Transaction, Arena stock had been

trading well in excess of the consideration they are likely to receive in the Proposed Transaction.

In fact, as recently as March 1, 2010, Arena’s stock traded at $43.11.

38. The Proposed Transaction represents a paltry premium of just 17% based on the

closing price of Arena and SandRidge stock the day prior to the announcement of the Proposed

Transaction. Just recently on December 21, 2009, a Bloomberg article entitled “CEOs paying

56% M&A Premium Shows Stocks May be Cheap” reported that “[t]he average premium in

mergers and acquisitions in [2009] which U.S. companies were the buyer and seller rose to 56%

this year from 47 percent last year [2008] ...” Thus, the Proposed Transaction premium of 17%

is well below the average premium in like transactions during 2009.

39. Further, at least one Wall Street analyst had a price target of $50 per share before

the Proposed Transaction was announced. Moreover, the average price target among 11 brokers

that analyzed the Company was $42.09 per share.

40. Given the recent performances of the Company and SandRidge, and the prospects

that lay ahead for each company, including the direction of the oil and gas markets, the

consideration shareholders are to receive is inadequate. Accordingly, SandRidge is picking up

Arena at the most opportune time, at a time when Arena is poised for growth and its stock price

is trading at a huge discount to its intrinsic value, and at a time when SandRidge is performing

very poorly.

Financial Benefits Received by Certain Directors

41. Certain directors have clear and material conflicts of interest and are acting to

better their own interests at the expense of Arena’s public shareholders. For example, certain of

the Individual Defendants currently hold restricted stock of Arena that, upon consummation of

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the Proposed Transaction, will no longer be subject to the restrictions and will be converted into

a right to receive the merger consideration. In particular, Defendants McCabe and Rochford

each own $5,139,000 worth of restricted stock.

42. Moreover, pursuant to the Merger Agremeent, Arena “will enter into an

agreement with Lloyd T. Rochford to pay him a severance benefit upon completion of the

merger consisting of (a) a single cash payment of $72,000, and (b) payment of COBRA

premiums for Mr. Rochford and his spouse for a period of up to 18 months following the

merger.”

The Preclusive Deal Protection Devices

43. On April 4, 2010, the Company filed a Form 8-K with the United States Securities

and Exchange Commission (“SEC”) wherein it disclosed the operating Agreement and Plan of

Merger for the Proposed Transaction (the “Merger Agreement”). As part of the Merger

Agreement, Defendants agreed to certain onerous and preclusive deal protection devices that

operate conjunctively to make the Proposed Transaction a fait accompli and ensure that no

competing offers will emerge for the Company.

44. By way of example, §6.10(a) of the Merger Agreement includes a “no

solicitation” provision barring the Board and any Company personnel from attempting to procure

a price in excess of the amount offered by SandRidge. This section also demands that the

Company terminate any and all prior or on-going discussions with other potential suitors.

Despite the fact that they have locked up the Company and bound it to not solicit alternative

bids, the Merger Agreement provides other ways that guarantee the only suitor will be

SandRidge.

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45. Pursuant to §6.10 of the Merger Agreement, should an unsolicited bidder arrive

on the scene, the Company must notify SandRidge of the bidder’s offer. Thereafter, should the

Board determine that the unsolicited offer is superior, SandRidge is granted three days to amend

the terms of the Merger Agreement to make a counter-offer so that the competing bid no longer

constitutes a superior proposal. SandRidge is able to match the unsolicited offer because it is

granted unfettered access to the unsolicited offer, in its entirety, eliminating any leverage that the

Company has in receiving the unsolicited offer.

46. In other words, the Merger Agreement gives SandRidge access to any rival

bidder’s information and allows SandRidge a free right to top any superior offer. Accordingly,

no rival bidder is likely to emerge and act as a stalking horse for SandRidge, because the Merger

Agreement unfairly assures that any “auction” will favor SandRidge and piggy-back upon the

due diligence of the foreclosed second bidder.

47. In addition, the Merger Agreement provides that a termination fee of $50,000,000

million must be paid to SandRidge by Arena if the Company decides to pursue said other offer,

thereby essentially requiring that the alternate bidder agree to pay a naked premium for the right

to provide the shareholders with a superior offer.

48. Ultimately, the preclusive deal protection devices illegally restrain the Company’s

ability to solicit or engage in negotiations with any third party regarding a proposal to acquire all

or a significant interest in the Company. The circumstances under which the Board may respond

to an unsolicited written bona fide proposal for an alternative acquisition that constitutes or

would reasonably be expected to constitute a superior proposal are too narrowly circumscribed to

provide an effective “fiduciary out” under the circumstances. Likewise, these provisions also

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foreclose any likely alternate bidder from providing the needed market check of SandRidge’s

inadequate offer price.

The Materially Misleading And Incomplete Proxy

49. On April 16, 2010, SandRidge a Form S-4 Registration Statement with the SEC in

connection with the Proposed Transaction, which includes a joint proxy statement/prospectus

(the “Proxy”).

50. The Proxy fails to provide the Company’s shareholders with material information

and/or provides them with materially misleading information thereby rendering the shareholders

unable to make an informed decision on whether to vote in favor of the Proposed Transaction.

51. For example, the Proxy completely fails to disclose the underlying methodologies,

projections, key inputs and multiples relied upon and observed by Tudor, Pickering, Holt & Co.

Securities, Inc. (“TudorPickering”), the Company’s financial advisor, so that shareholders can

properly assess the credibility of the various analyses performed by TudorPickering and relied

upon by the Board in recommending the Proposed Transaction. In particular, the Proxy is

deficient and should provide, inter alia, the following:

(i) The financial projections and forecasts of the Company relied uponby TudorPickering in rendering its fairness opinion.

(ii) The financial projections and forecasts of SandRidge relied uponby TudorPickering in rendering its fairness opinion.

(iii) The “cost savings and other synergies projected by themanagement of SandRidge” to result from the ProposedTransaction.

(iv) The key inputs used in the Net Assert Value Analysis of Arena,including a) the cash flows generated by the estimated proved,probable, and possible reserves and the probability weightsassigned to each category, b) the criteria used to select theprobability weights ranging from 25% to 100%, c) the presentvalue of existing hedges, d) the criteria used to select discount rates

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ranging from 9% to 11%, and e) the commodity prices used toderive the cash flows used in the analysis.

(v) The key inputs used in the Discounted Cash Flow Analysis ofArena, including a) the criteria used to select the 4.5x to 6.5xmultiple range used in the analysis, b) the criteria used to select thediscount rate range of 9% to 11%, and c) the cash flows andterminal values derived from each of the three commodity cases.

(vi) The key inputs used in the Net Assert Value Analysis ofSandRidge, including a) the cash flows generated by the estimatedproved, probable, and possible reserves and the probability weightsassigned to each category, b) the criteria used to select theprobability weights ranging from 25% to 100%, c) the presentvalue of existing hedges, d) the criteria used to select a discountrate of 10%, and e) the commodity prices used to derive the cashflows used in the analysis.

(vii) The key inputs used in the Discounted Cash Flow Analysis ofSandRidge, including a) the criteria used to select the 6.5x multiplerange used in the analysis, b) the criteria used to select the discountrate of 10%, and c) the cash flows and terminal values derivedfrom each of the two commodity cases.

(viii) The transaction value and premiums observed for each transactionused in the Premiums Paid Analysis.

(ix) The criteria used to select the transactions used in the SelectCorporate Transaction Statistics Analysis.

(x) The transaction value, transaction value over daily production, andthe transaction value over current year and forward year EBIDTAmetrics observed for each transaction used in the Select CorporateTransaction Statistics Analysis.

(xi) The criteria used to select the transactions that had “similargeographic or commodity characteristics” used in the Select Oil-Weighted Transaction Statistics Analysis.

(xii) The transaction value over proved reserves and the transactionvalue over daily production metrics observed for each transactionin the Select Oil-Weighted Transaction Statistics Analysis.

(xiii) The criteria used to select the companies used in the Select PublicCompany Trading Statistics Analysis, including the criteria used to

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select the companies with “assets and operations most similar” toArena.

(xiv) The multiples observed for each company used in the Select PublicCompany Trading Statistics Analysis.

52. The Proxy also completely fails to disclose the underlying methodologies,

projections, key inputs and multiples relied upon and observed by Deutsche Bank Securities Inc.

(“Deutsche Bank”), SandRidge’s financial advisor, so that shareholders can properly assess the

credibility of the various analyses performed by Deutsche Bank. In particular, the Proxy is

deficient and should provide, inter alia, the following:

(i) The financial projections and forecasts of Arena prepared bymanagement of SandRidge relied upon by Deutsche Bank inrendering its fairness opinion.

(ii) Key inputs used in the Net Asset Valuation Analysis, including a)the range of discount rates used and the criteria used to select suchrange, b) information describing the “risk adjustments applied tocertain categories of reserves as deemed appropriate by DeutscheBank and SandRidge management,” and c) the assumptions used toadjust the commodity price estimates used for SandRidge andArena.

(iii) Key inputs used in the Comparable Company Analysis of Arenaand SandRidge, including a) the multiples observed for eachcompany used in the analysis, and b) “the differing sizes, growthprospects, reserve profiles, profitability levels and degrees ofoperational risk between” Arena and the selected companies andbetween SandRidge and the comparable companies used in theanalysis.

(iv) Key inputs used in the Comparable Transaction Analysis,including a) the transaction value and multiples observed (or atleast the high/low/mean range) for each transaction in the analysis,and b) the judgments made by Deutsche Bank regarding thedifferences between the characteristics of the comparabletransaction and the Proposed Transaction.

53. Further, the Proxy omits material information regarding the financial advisors

retained by the Company. Specifically, the Proxy states that the Company retained SunTrust

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Robinson Humphrey, Inc. (“SunTrust”), as its financial advisor on March 12, 2010. However, a

representative of SunTrust originally met with Ward, SandRidge’s CEO on January 19, 2010 to

discuss potential transaction opportunities, and SunTrust introduced the two companies to each

other to facilitate discussions on February 24, 2010. The Proxy must disclose a) the reasons the

Company retained SunTrust in connection with a potential transaction with SandRidge in light of

its relationship with SandRidge, b) whether other investment advisors were considered, c) the

amount of fees, if any, received, or to be received, by SunTrust from SandRidge for any services

provided to SandRidge in the past, and d) the amount of fees received, or to be received, by

SunTrust from the Company in connection with the Proposed Transaction. In addition, the

Company also retained TudorPickering to render a fairness opinion. The Proxy should disclose

the criteria used to select TudorPickering and the reasons SunTrust was not retained to render a

fairness opinion. Moreover, the Proxy states that “TudorPickering has provided investment

banking services to third parties who considered engaging in a transaction with Arena and

received fees for those services.” The Proxy must disclose the nature of the services performed

for each such party, and the fees received. In addition, the Proxy states that “TudorPickering has

also provided various investment banking services to both Arena and SandRidge in the past for

which it received fees or compensation...” The Proxy must disclose the amount of compensation

received for each such service. The Proxy also states that TudorPickering and its affiliates,

including members of the team performing services in connection with the Proposed Transaction

“may from time to time acquire, hold or make direct or indirect investments in or otherwise

finance a wide variety of companies, including Arena and SandRidge, other prospective

purchasers and their respective affiliates.” The Proxy must disclose the amount and nature of the

investments and financing by TudorPickering with regards to such companies, including Arena,

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SanRidge, and any prospective purchasers. It is material for shareholders to be informed as to

any financial and economic interests TudorPickering has in the Proposed Transaction or in the

parties involved that could be perceived or create a conflict of interest.

54. The Proxy should also disclose the reasons the Company failed to conduct a

market check prior into entering the Proposed Transaction. Pursuant to the Proxy, there is no

indication that the Company solicited even one party to gauge their interest in a possible

transaction with the Company. Rather, after being introduced to SandRidge by SunTrust on

February 24, 2010, the Company, with no prior intention to sell, just 40 days later approved a

merger agreement with SandRidge. The Proxy must disclose the reasons the Company entered

into the Proposed Transaction without conducting a market check, as well as the reasons for not

negotiating a post-signing go-shop period.

55. The Proxy must also disclose the reasons the Board determined that the 4.67

exchange ratio was insufficient on March 31, 2010, the “unique synergies which were unlikely to

be present in any other business combination opportunity” that were presented by SunTrust to

the Board on March 31, 2010, and the reasons the Board found the 4.7771 sufficient considering

the 4.67 exchange ratio was insufficient.

56. Accordingly, Plaintiff seeks injunctive and other equitable relief to prevent the

irreparable injury that Company shareholders will continue to suffer absent judicial intervention.

CLAIM FOR RELIEF

COUNT IViolations of Section 14(a) of the Exchange Act

and Rule 14a-9 Promulgated Thereunder

57. Plaintiff repeats all previous allegations as if set forth in full herein.

58. Defendants have issued the Proxy with the intention of soliciting shareholder

support of the Proposed Transaction.

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59. Rule 14a-9, promulgated by SEC pursuant to Section 14(a) of the Exchange Act

provides that a proxy statement shall not contain “any statement which, at the time and in the

light of the circumstances under which it is made, is false or misleading with respect to any

material fact, or which omits to state any material fact necessary in order to make the statements

therein not false or misleading.” 17 C.F.R. §240.14a-9.

60. Specifically, the Proxy violates the Section 14(a) and Rule 14a-9 because it omits

material facts, including those set forth above. Moreover, in the exercise of reasonable care,

Defendants should have know that the Proxy is materially misleading and omits material facts

that are necessary to render them non-misleading.

61. The misrepresentations and omissions in the Proxy are material to Plaintiff and

the Class, and Plaintiff and the Class will be deprived of their entitlement to cast a fully informed

vote if such misrepresentations and omissions are not corrected prior to the vote on the Proposed

Transaction.

COUNT IIBreach of Fiduciary Duty – Failure to Maximize Shareholder Value

(Against All Individual Defendants)


63. As Directors of Arena, the Individual Defendants stand in a fiduciary relationship

to Plaintiff and the other public stockholders of the Company and owe them the highest fiduciary

obligations of loyalty and care. The Individual Defendants’ recommendation of the Proposed

Transaction will result in change of control of the Company which imposes heightened fiduciary

responsibilities to maximize Arena’s value for the benefit of the stockholders and requires

enhanced scrutiny by the Court.

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64. As discussed herein, the Individual Defendants have breached their fiduciary

duties to Arena shareholders by failing to engage in an honest and fair sale process.

65. As a result of the Individual Defendants’ breaches of their fiduciary duties,

Plaintiff and the Class will suffer irreparable injury in that they have not and will not receive

their fair portion of the value of Arena’s assets and will be prevented from benefiting from a

value-maximizing transaction.

66. Unless enjoined by this Court, the Individual Defendants will continue to breach

their fiduciary duties owed to Plaintiff and the Class, and may consummate the Proposed

Transaction, to the irreparable harm of the Class.

67. Plaintiff and the Class have no adequate remedy at law.

COUNT IIIBreach of Fiduciary Duty -- Disclosure

(Against Individual Defendants)


69. The fiduciary duties of the Individual Defendants in the circumstances of the

Proposed Transaction require them to disclose to Plaintiff and the Class all information material

to the decisions confronting Arena’s shareholders.

70. As set forth above, the Individual Defendants have breached their fiduciary duty

through materially inadequate disclosures and material disclosure omissions.

71. As a result, Plaintiff and the Class members are being harmed irreparably.


COUNT IVAiding and Abetting

(Against Arena and SandRidge)


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74. As alleged in more detail above, Arena and SandRidge are well aware that the

Individual Defendants have not sought to obtain the best available transaction for the Company’s

public shareholders. Defendants Arena and SandRidge aided and abetted the Individual

Defendants’ breaches of fiduciary duties.

75. As a result, Plaintiff and the Class members are being harmed.


WHEREFORE, Plaintiff demands judgment against Defendants jointly and severally, as

follows:

(A) declaring this action to be a class action and certifying Plaintiff as the

Class representatives and his counsel as Class counsel;

(B) declaring that the Proxy is materially misleading and contains omissions

of material fact in violation of Section 14(a) of the Exchange Act and Rule 14a-9 promulgated

thereunder;

(C) enjoining, preliminarily and permanently, the Proposed Transaction;

(D) in the event that the transaction is consummated prior to the entry of this

Court’s final judgment, rescinding it or awarding Plaintiff and the Class rescissory damages;

(E) directing that Defendants account to Plaintiff and the other members of the

Class for all damages caused by them and account for all profits and any special benefits

obtained as a result of their breaches of their fiduciary duties;

(F) awarding Plaintiff the costs of this action, including a reasonable

allowance for the fees and expenses of Plaintiff’s attorneys and experts; and

(G) granting Plaintiff and the other members of the Class such further relief as

the Court deems just and proper.

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Dated this 23 rd day of April, 2010

Respectfully submitted,

By: GREGORY G. MEIER, OBA #6122MEIER & ASSOCIATES1524 South Denver AvenueTulsa, OK 74119-3829(918) 584-1212 - Voice(918) 584-1295 - Facsimile

OF COUNSEL:LEVI & KORSINSKY, LLPJoseph Levi, Esq.Juan E. Monteverde, Esq.30 Broad Street, 15th FloorNew York, New York 10004Tel: (212) 363-7500Fax: (212) 363-7171

ATTORNEYS FOR PLAINTIFF

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in the united states district court northern district...

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