## Facts

- SGS Associates, a partnership, accumulated Enterra Corporation stock and became its largest shareholder.
- In early 1983 SGS filed a Schedule 13D disclosing a negotiated standstill agreement with Enterra’s board.
- The standstill limited SGS to no more than 15% ownership and barred SGS from making a tender offer for Enterra shares.
- Enterra’s board entered the standstill to maintain stability and avoid disruption from acquisition tactics associated with rapid share accumulation.
- In 1984 SGS sought to exceed the standstill limits and proposed acquiring all outstanding Enterra shares.
- SGS asked the board to amend the standstill to remove the 15% cap and to submit SGS’s proposal to shareholders; the board rejected both requests.
- SGS publicly announced its offer despite the standstill restrictions.
- Enterra sued alleging, among other claims, breach of the standstill agreement and related federal and state securities-law violations; SGS counterclaimed against Enterra’s directors.
- A consolidated shareholder action challenged the board’s conduct concerning the same transactions.
- The court heard cross-applications for preliminary injunctive relief, including SGS’s request for a mandatory injunction directing board action.

## Issues

1. Whether Enterra was entitled to preliminary injunctive relief enforcing the standstill agreement and restraining SGS from acquisition efforts that violated it.
2. Whether SGS was entitled to a mandatory preliminary injunction compelling the board to evaluate SGS’s proposal and submit it to a shareholder vote with a board recommendation.

## Decision

- The court granted Enterra’s request for preliminary injunctive relief enforcing the standstill agreement.
- The court denied SGS’s motion for a mandatory preliminary injunction compelling the board to consider and submit SGS’s proposal to shareholders.
- The court held that SGS failed to satisfy the heightened requirements for mandatory preliminary relief and that enforcing the standstill maintained the corporate and contractual status quo pending final adjudication.

## Legal Principles

- A mandatory preliminary injunction is disfavored and requires a particularly strong showing under the preliminary-injunction factors, given its intrusive, affirmative character.
- Standstill agreements negotiated at arm’s length between a corporation and a major shareholder are presumptively enforceable on a preliminary record absent a strong showing of illegality, unconscionability, or invalidity as against public policy.
- A shareholder’s later desire to pursue a takeover does not negate voluntary contractual limits on share acquisition and tender offers.
- Directors’ fiduciary duties do not ordinarily require a board to submit a bidder’s acquisition proposal to shareholders upon the bidder’s demand; business-judgment principles generally protect board decisions about whether and how to respond to takeover proposals.
- Courts are reluctant at the preliminary stage to issue orders that reallocate corporate decisionmaking authority by compelling board action in the takeover context.

## Conclusion

The court enforced a negotiated standstill agreement restricting a large shareholder’s acquisition tactics and refused to compel the board to place the shareholder’s takeover proposal before Enterra’s shareholders, emphasizing the enforceability of corporate contracts and the demanding standard for mandatory preliminary injunctions that intrude into corporate governance.


Enterra Corp. v. SGS Assocs., 600 F. Supp. 678 (E.D. Pa. 1985)