Corre Opportunities Fund, LP v. Emmis Communications Corp.
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Full Opinion
ORDER DENYING PLAINTIFFS’ MOTION FOR PRELIMINARY INJUNCTION
This cause is before the Court on Plaintiffs’ Motion for Preliminary Injunction
A hearing was held on July 31 and August 1, 2012, at which the parties presented evidence and oral argument. Having considered the parties’ briefing, the documentary and testimonial evidence, and oral arguments, the Court hereby DENIES Plaintiffs’ motion for injunctive relief.
Factual Background
Relevant Rights and Protections of Preferred Stock
In 1999, Emmis issued 2,875,000 shares of 6.25% Series A Cumulative Convertible Preferred Stock (“Preferred Stock”) for $50 per share, raising approximately $144 million. Docket No. 43 ¶ 23. Plaintiffs are all shareholders who own, or manage funds that own, more than 800,000 shares of Emmis’s Preferred Stock.
Emmis’s Articles of Incorporation sets out the rights and protections associated with the Preferred Stock, which include, inter alia: (1) a right to cumulative annual cash dividends at a rate per annum equal to 6.25% of the stock’s $50 liquidation preference; (2) a bar on Emmis’s ability to pay dividends to its common stockholders or to repurchase securities ranking junior to or ratably with the Preferred Stock unless Emmis is current on the Preferred Stock dividend payments; (3) a right to sell the stock back to Emmis at $50 per share, plus any outstanding dividends, if the Company goes private; (4) the right to elect two Emmis directors if dividends are not paid for six consecutive quarters; and (5) the requirement that any issuance of senior-ranking stock or any adverse amendment to the terms of the Preferred Stock be approved by two-thirds of the outstanding Preferred Stock. Exh. 7.
Attempts to Take Emmis Private
In 2006, Emmis CEO, Jeff Smulyan, proposed to take Emmis private by purchasing the Company’s common stock at $15.25 per share. However, a committee of disinterested directors of the Board of Directors (“the Board”) rejected his proposal and Emmis remained a public company. Smulyan Dep. at 20. Two years later, in October 2008, Emmis, like other entities in the radio and media industry, was hit hard by the nationwide financial crisis and was forced to cut its workforce, reduce employee benefits, and cut wages and salaries. Emmis also ceased paying dividends to its Preferred Shareholders at that time and has not paid dividends since.
In 2010, two years after the financial crisis, the market price of Emmis’s Common Stock had fallen to less than $3.00 per share. Smulyan Dep. at 23. Mr. Smulyan, fueled by the belief that the Common Stock was undervalued by the market, proposed another go-private transaction. As
Emmis’s Proposal to Acquire Preferred Stock Using Total Return Swaps
In the summer of 2011, Emmis’s senior management was contacted by a few of the Preferred Shareholders who sought liquidity for their shares. Hornaday Dep. at 45; Smulyan Dep. at 47; Walsh Dep. at 56-58. According to Defendants, Emmis recognized the benefits to its capital structure of repurchasing its Preferred Stock at the then-prevailing market rate. Repurchasing the Preferred Stock for approximately 25 cents on the dollar would be treated by credit rating agencies as the extinguishment of debt at a substantial discount, making it easier for Emmis to refinance senior debt at lower interest rates, which would in turn have the effect of improving the Company’s overall financial health, increasing the value of Emmis’s common stock and possibly the remaining Preferred Stock as well. Hornaday Dep. at 33-34, 64-65; Walsh Dep. at 52, 55-56; Momtazee Dep. at 143-44.
In September 2011, Emmis’s senior management negotiated with Zell Credit Opportunities Master Fund, LLC (“Zell”) for financing that would enable Emmis to repurchase the Preferred Stock. At approximately that same time, in September and October 2011, Emmis began approaching its ten largest Preferred Shareholders
Emmis’s senior management presented the proposal to repurchase Preferred Stock using the Zell Financing at the Board’s October 25, 2011 meeting. Management explained that repurchasing Emmis’s Preferred Stock at a discount with funds borrowed from Zell would benefit the Company. At that meeting, in addition to the presentation made by the senior management team, Emmis’s financial advisor, John Momtazee of Moelis & Company along with outside legal counsel advised the Board regarding the proposal. See Exh. 18; Exh. 407.
One of the goals of the purchase proposal was not simply to acquire Preferred Stock, but also to preserve the voting rights of the Preferred Stock it did acquire. Under Indiana law, any shares of Preferred Stock that Emmis acquired through outright purchases would have to
The proposal was approved by unanimous vote of the directors, including all of its independent directors as well as the Preferred Shareholders’ representative on the Board, David Gale. See Exh. 18 at 1. Gale did express concern regarding what Emmis planned to do if it acquired voting control of two-thirds of the Preferred Stock. However, after being informed that the Board would not take any action on that issue at that meeting, he ultimately voted in favor of the Preferred Stock repurchase proposal, including the use of TRS transactions and accompanying TRS Voting Agreements. Gale Dep. at 32, 42-43. .
Emmis’s Acquisition of Preferred Stock Using Total Return Swaps
With authorization from the Board, Emmis’s senior management finalized the Zell Financing and proceeded with the discussions with the ten targeted Preferred Shareholders about acquisition of their shares. On November 10, 2011, Emmis signed the loan agreement with Zell and the next day announced it would acquire Preferred Stock from certain holders pursuant’ to TRS transactions. Exh. 235; Exh. 803. Because at that point Emmis had entered into these discussions with only ten of its Preferred Shareholders regarding the acquisition of their shares, the announcement that Emmis made on November 11 was the first notice to the remaining Preferred Shareholders of Emmis’s acquisition plans. On November 14, 2011, in a 8-K filing submitted to the Securities Exchange Commission (“SEC”), Emmis disclosed that it had secured the Zell financing and that it had “entered into securities purchase agreements with certain holders of its Preferred Stock,” and that, “[t]he transactions will settle pursuant to the terms of total return swaps ..., the terms of which provide that until final settlement of these arrangements, the seller agree[d] to vote its shares in accordance with the prior written instructions of Emmis.” Exh. 604. Emmis further disclosed that it “may enter into additional transactions to purchase its Preferred Stock in the future. Id. According to an 8-K form
One week later, on November 22, 2011, as part of a broader agreement to settle all litigation related to its pullout from the 2010 go-private transaction, Alden Capital agreed to enter into a TRS transaction with Emmis involving over 1,000,000 shares of Preferred Stock. These shares represented approximately 34% of the outstanding Preferred Stock and increased the percentage of shares over which Emmis had secured voting control to 56.8%. Exh. 607. Defendants claim that it was only at this point that Emmis’s senior management first believed that the Company might be able to gain control of two-thirds of the outstanding shares of the Preferred Stock.
On that same day, the Board met to discuss the merits of a tender offer and the implications of acquiring voting control over at least two-thirds of the outstanding Preferred Stock. The minutes of that meeting state that no decision was being made at that time “with respect to any possible amendments to the terms of the preferred stock,” and that, “such a determination, if any,” would be made at a separate meeting. Exh. 6. The Board did, however, approve by an 8-1 margin
The Dutch Auction Tender Offer
On November 30, 2011, Emmis announced that it would conduct a modified Dutch auction tender offer to purchase up to $6 million in Preferred Stock at a price between $12.50 and $15.56 per share. The next day, on December 1, 2011, Emmis submitted its tender offer filing to the SEC. In that filing, Emmis stated that if it succeeded in obtaining two-thirds of the vote, it “may elect to, among other things, amend various provisions applicable to the Preferred Shares.” Exh. 609. By December 12, 2011, in response to the disclosures made in Emmis’s December 1 filing, four of the five Plaintiffs had entered into a formal lockup agreement in an attempt to gain a blocking position by controlling at least one-third of the vote of the Preferred Stock.
On January 5, 2012, Emmis announced that it had purchased through the December tender offer 164,400 shares of Preferred Stock. Because those shares were purchased rather than acquired through TRS transactions, they were retired and returned to the status of authorized but unissued Preferred Stock, thereby reducing the number of shares of outstanding Preferred Stock, which in turn increased the percentage of shares over which Emmis controlled the vote to 60.6%. See Exh. 616 at 14.
Creation of Employee Retention Plan Trust and Reissuance of Preferred Stock
In January 2012, Emmis entered into negotiations with its lenders, Zell and Canyon Capital Advisors, whereby Emmis proposed to reissue to the lenders approximately 400,000 shares of Preferred Stock which amount was needed to reach the two-thirds threshold. However, in early February 2012, Zell and Canyon concluded that the possible return on an investment in the Preferred Stock was not worth the risk of litigation with the lockup group and declined to invest. See Exh. 12; Exh. 13.
Once negotiations with Zell and Canyon stalled, Emmis’s senior management decided to create an employee benefit plan trust (“the Retention Plan Trust”) to which it could issue the 400,000 shares of Preferred Stock, which would be voted as directed by the Board.
Before the proxy for approval of the Retention Plan Trust was tendered, Emmis made a separate filing on March 13, 2012, announcing its intention to conduct a vote amending the rights of the remaining Preferred Shareholders by using the shares that it planned to issue to the not-yet-created Trust. The March 13 filing also noted that the shares in the Retention Plan Trust would vote in favor of the proposed amendments. Exh. 24. On April 2, 2012, the Trust, with Mr. Smulyan as Trustee, was approved by shareholder vote. Emmis then contributed 400,000 shares of Preferred Stock in return for a voting agreement allowing the Company to direct the vote of those shares, giving Emmis control of over two-thirds of the Preferred Stock. See Exh. 613 at 69.
Board Approval and Disclosure of Proposed Amendments
At the February 29 and March 8 Board meetings when the Retention Plan Trust was discussed and adopted, the Board for the first time also discussed the details of specific Amendments to the Articles of Incorporation affecting the terms of the Preferred Stock (at the February 29 meeting) and approved the Proposed Amend
Emmis filed a preliminary proxy statement on March 13, 2012, in which it disclosed the exact terms of the Proposed Amendments and its expectation that the holders of two-thirds of the Preferred Stock would vote in favor of the Amendments, based on the terms of the TRS and Retention Plan Trust Voting Agreements. Id. The preliminary proxy also provided as follows:
The Emmis board of directors, with the exception of Dave Gale who was appointed as a director by the holders of the Preferred Stock, believes the Proposed Amendments will have a positive effect on the overall capital structure of Emmis, which will have a beneficial impact on holders of the Common Stock. Accordingly, the board of directors, with the exception of Mr. Gale, believes that the Proposed Amendments are in the best interests of Emmis and the holders of the Common Stock and recommends that the holders of the Common Stock vote FOR the Proposed Amendments.
Id. at 6.
The Instant Litigation
On April 16, 2012, Plaintiffs filed their Complaint as well as the instant motion for injunctive relief, alleging that Defendants’ acquisition of Preferred Stock through TRS transactions and the reissuance of Preferred Stock to the Retention Plan Trust violated various federal securities laws as well as the laws governing the conduct of Indiana corporations.
Legal Analysis
I. Standard of Review
The grant of injunctive relief is appropriate if the moving party is able to demonstrate: (1) a reasonable likelihood of succeeding on the merits; (2) irreparable harm if preliminary relief is denied; and (3) an inadequate remedy at law. Girl Scouts of Manitou Council, Inc. v. Girl Scouts of the United States of America, Inc., 549 F.3d 1079, 1086 (7th Cir.2008). If the moving party fails to demonstrate any one of these three threshold requirements, the emergency relief must be denied. Id. However, if these threshold conditions are met, the Court must then assess the balance of harm — the harm to Plaintiffs if the injunction is not issued against the harm to Defendants if it is issued — and, where appropriate, also determine what effect the granting or denying of the injunction would have on nonparties (the public interest). Id.
In determining whether to grant injunctive relief, the district court must take into account all four of these factors and then “exercise its discretion ‘to arrive at a decision based on the subjective evaluation of the import of the various factors and a personal, intuitive sense about the nature of the case.’ ” Id. (quoting Lawson
II. Likelihood of Success on the Merits
A. State Law Claims
1. Breach of Contract
Plaintiffs contend that Emmis’s acquisition of Preferred Stock breached Section 3.3 of Emmis’s Articles of Incorporation (“the Articles”), which governs the Preferred Shareholders’ rights, and that Emmis’s re-issuance of acquired Preferred Stock to the 2012 Retention Plan Trust breached Section 7.3 of that same agreement. We address these claims in turn,
a. Section 3.3
Section 3.3 provides in relevant part as follows:
[N]o Common Stock or any other stock of the Corporation ranking junior to or ratably with the Preferred Stock as to dividends ... may be redeemed, purchased or otherwise acquired for any consideration ... by the Corporation ... unless full Accumulated Dividends shall have been or contemporaneously are paid or declared and a sum sufficient for the payment thereof is set apart for such payment on the Preferred Stock for all Dividend Payment Periods terminating on or prior to the date of such declaration, payment, redemption, purchase or acquisition.
Exh. 7 at EM 0007061.
It is undisputed that, between October 2011 and January 2012, Emmis acquired shares of Preferred Stock without first paying accumulated dividends to the Preferred Shareholders. Thus, we turn to the question of whether Preferred Stock constitutes stock “ranking junior to or ratably with the Preferred Stock.” When interpreting contract terms, “[u]n-less the terms of the contract are ambiguous, they will be given their plain and ordinary meaning.” Tanton v. Grochow, 707 N.E.2d 1010, 1013 (Ind.Ct.App.1999) (citation omitted). Courts are to “construe the contract as a whole and consider all provisions of the contract, not just the individual words, phrases, or paragraphs.” Brotherhood Mut. Ins. Co. v. Michiana Contracting, Inc., 971 N.E.2d 127, 131 (Ind.Ct.App.2012) (citation omitted).
Plaintiffs contend that Defendants’ acquisition of Preferred Stock without first paying dividends violated Section 3.3 because the phrase “any other stock ... ranking junior to or ratably with the Preferred Stock” encompasses the Preferred Stock itself. Plaintiffs argue that the plain and ordinary meaning of “ratable” is “pro rata” or “proportional,” and thus, that shares of Preferred Stock “rank ratably with” other shares of Preferred Stock as to dividends. In further support of their argument, Plaintiffs point to Section 7.3 of Emmis’s Articles of Incorporation, which refers to: “shares of preferred stock which rank ratably with the Preferred Stock (including the issuance of additional shares of the Preferred Stock).” (emphasis added). Plaintiffs contend that because there is no indication that the phrase was intended to have varying definitions throughout
However, as Defendants argue, if the intent of Section 3.3 was in fact to prohibit Emmis’s acquisition of the Preferred Stock itself, the Section would have provided that Emmis could only acquire stock ranking senior to the Preferred Stock or added the phrase “including the Preferred Stock” after “ratably with the Preferred Stock,” as Section 7.3 of the Articles does. The fact that such language was used in Section 7.3 of the same agreement demonstrates that when the drafters intended to include Preferred Stock as stock that “ranks ratably” with itself, they knew how to make that distinction and they clearly expressed that intent. Because Section 3.3 does not include such a distinction, it suggests that the drafters did not intend that meaning to be read into the provision. Moreover, because Preferred Stock is Preferred Stock, it is logical to conclude that stock that ranks ratably mth Preferred Stock must be some other series of stock.
For the foregoing reasons, we find that Plaintiffs have failed to establish that they have a reasonable likelihood of success in proving that Defendants’ acquisition of Preferred Stock through the TRS transactions constituted a breach of Section 3.3 of the Articles.
b. Section 7.3
Section 7.3 provides in relevant part as follows:
The affirmative vote or consent of the holders of at least 66 2/3% of the outstanding Preferred Stock will be required for the issuance of any class or series of stock, or security convertible into the Corporation’s stock, ranking senior to the Preferred Stock as to dividends, liquidation rights or voting rights and for amendments to the Corporation’s Articles of Incorporation that would adversely affect the rights of holders of the Preferred Stock; provided however, that any issuance of shares of preferred stock which rank ratably with the Preferred Stock (including the issuance of additional shares of the Preferred Stock) will not, by itself, be deemed to adversely affect the rights of the holders of the Preferred Stock. In all such cases, each share of Preferred Stock will be entitled to one vote.
Exh. 7 at EM0007065 (emphasis in original).
Plaintiffs argue that both the Preferred Stock acquired through TRS transactions and the Preferred Stock reissued to the Retention Plan Trust constitute classes of stock ranking senior to voting rights of the originally issued Preferred Stock, and thus, because Emmis did not receive the affirmative vote of two-thirds of the outstanding Preferred Stock before engaging in such actions, it breached Section 7.3. Basically, Plaintiffs argue that the “TRS Preferred Stock” and “Retention Plan Preferred Stock” are senior to the Preferred Stock they own because embedded within each TRS and Retention Plan share is a vote to eliminate the rights of the Preferred Stock. In other words, Plaintiffs’ argument is that the embedded voting shares are senior to Preferred Stock because they constitute an automatic block of votes, and thus are in essence the same as one super-share with hundreds of thousands of votes.
In support of their argument, Plaintiffs point to an internal memorandum produced by Emmis’s accounting firm, Ernst & Young, which concludes with reference to the Preferred Stock acquired through the TRS transactions that, for accounting purposes, those acquisitions should be considered “the issuance of a new ‘modified’ preferred stock.” Exh. 109. However, this characterization for accounting
Moreover, the mere fact that newly issued shares will affect the outcome of a shareholder vote does not automatically transform those shares into a senior class of stock. As Defendants point out, whenever authorized shares of an Indiana corporation are available for issuance, shareholders of that corporation bear the risk that the corporation’s decision to issue new shares of an existing class will alter the outcome of an election. Thus, the only question currently before us is whether the Board had the power to issue the shares under the Articles, and, in so doing, whether it acted in accordance with the standards prescribed in the IBCL.
Section 10.2 of Exhibit A to the Articles addresses the reacquisition and reissuance of the Preferred Stock, providing as follows:
Shares of Preferred Stock issued and reacquired will be retired and canceled promptly after reacquisition thereof and, upon compliance with the applicable requirements of Indiana law, have the status of authorized but unissued shares of preferred stock of the Corporation undesignated as to series and may with any and all other authorized but unissued shares of preferred stock of the Corporation be designated or redesignated and issued or reissued, as the case may be, as part of any series of preferred stock of the Corporation, except that any issuance or reissuance of shares of Preferred Stock must be in compliance with [Exhibit A to the Articles].
Exh. 7 at EM0007072. Section 8.1 of the Articles also empowers the Board to designate series of preferred shares having the voting rights, preferences, and other rights determined by the Board. Id. at EM0007050. These provisions clearly authorize the Board to reissue previously retired Preferred Stock without first receiving two-thirds approval as long as it is not senior to the Preferred Stock. In connection with the issuance of the Retention Plan Preferred Stock, the Board designated the shares issued as Preferred Stock having the voting rights, preferences and other rights of Preferred Stock, and thus, those shares were Preferred Stock, not a senior class of stock. There is nothing about the fact that Emmis can direct the votes of those shares that automatically transforms the Retention Plan Preferred Stock into a senior class of stock.
For the foregoing reasons, we conclude that Plaintiffs have failed to demonstrate a likelihood of prevailing on the merits with regard to establishing that Defendants’ acquisition of TRS Preferred Stock or reissuance of Retention Plan Preferred Stock breached Section 7.3 of the Articles.
2. Indiana Code § 23-1-30-2
a. Stock acquired through TRS transactions
Plaintiffs argue that Defendants cannot vote the shares of Preferred Stock they acquired through total return swaps because they are no longer “outstanding” as defined by Indiana statute. According to Plaintiffs, regardless of the label Defendants put on those transactions, they were sales in all respects but name, and consequently, the TRS shares should have been
It is undisputed that the transactions Defendants call total return swaps are not typical TRS transactions.
The Indiana Business Corporation Law (“IBCL”) expressly allows Indiana corporations to vote and “deal in” their own shares except as otherwise prohibited in the statute. Ind.Code § 23-1-22-2(6). Indiana Code § 23-l-30-2(a) grants voting rights to shares that are “outstanding.” Under Indiana law, issued shares remain outstanding “until they are reacquired, redeemed, converted, or cancelled.” Ind. Code § 23-1-25-3. Emmis’s Articles provide that, in accordance with Indiana law, shares that are reacquired by the company “will be retired and canceled promptly after reacquisition.” Exh. 7 at EM0007072.
Plaintiffs contend that, although the Preferred Shareholder counterparties retain record ownership, the TRS transactions are nevertheless tantamount to sales because Emmis acquired everything of value, to wit, both the economic rights and the right to direct the vote of the shares pursuant to the accompanying voting agreements.
Given these facts, we cannot conclude that Plaintiffs are likely to succeed in establishing that the TRS Stock is not outstanding, at least not within the meaning of the IBCL, since record ownership remains with the Preferred Shareholder counterparty. Nor have Plaintiffs shown a likelihood of success in establishing that Emmis cannot lawfully direct the vote of the TRS Stock via the TRS Voting Agreements. The IBCL expressly authorizes voting agreements between two or more shareholders providing for “the manner in which they will vote their shares.” Ind. Code § 23-1-31-2. Moreover, the only limitation on the general rule that each outstanding share is entitled to vote is contained in Indiana Code § 23 — 1—30—2(b), which prohibits a subsidiary from voting the shares of its parent if the parent owns a majority of the subsidiary’s shares. The Official Comments make clear, however, that subsection (b) “does not prohibit ... the voting of a corporation’s own shares in other circumstances where the corporation may have the power to direct the voting, such as shares owned by a limited partnership of which the corporation is the general partner.” (emphasis added).
In sum, unlike statutes governing corporations in certain other states, the IBCL expressly permits an Indiana corporation to vote its own shares. The IBCL also affords the board of directors broad discretion to act in the best interest of the corporation unless otherwise prohibited by the statute. Although the manner in which Defendants structured the TRS transactions to retain the voting rights is admittedly unusual, having clearly been creatively devised to serve the company’s purposes, we are not persuaded that Plaintiffs are likely to prevail on a claim that the IBCL prohibits their actions.
Plaintiffs contend that, if the TRS transactions are not deemed sales, then Defendants violated Section 14(a) of the Securities Exchange Act by failing to file a proxy solicitation statement in connection with their solicitation of irrevocable proxies from the Preferred Shareholders who participated in the TRS transactions. The purpose behind the proxy solicitation rules is to ensure that a shareholder who retains an economic interest in a corporation but is being asked to relinquish his voting rights receives adequate notice so the shareholder is able to make an informed decision regarding whether to relinquish those rights. However, there is an exception set forth in Rule 14a-2 to the general rule, which provides that disclosures required in accordance with proxy solicitations are not required for “[a]ny solicitation by a person in respect of securities of which he is the beneficial owner.” 17 C.F.R. § 240.14a-2(a)(2). In such cases, disclosures are not required because the voting rights follow the economics of the stock. Similarly, with regard to the TRS transactions, Emmis acquired both the economic rights as well as the voting rights of the stock. Accordingly, we hold that Plaintiffs are unlikely to succeed on their claim that Defendants violated Section 14(a) by failing to file a proxy solicitation statement under these circumstances.
b. Stock reissued to Retention Plan Trust
Under Indiana Code § 23-1-30-2(c), a corporation is allowed to “vote any shares, including its own shares, held by it in or for an employee benefit plan or in any other fiduciary capacity.” Plaintiffs argue that, despite this clear and unconditional allowance under Indiana law, Defendants should nevertheless be prohibited from voting the 400,000 shares of the Pre
The only authority Plaintiffs cite in support of this argument is the Southern District of Ohio’s decision in NCR Corporation v. AT & T Co., 761 F.Supp. 475 (S.D.Ohio 1991), in which the court, applying Maryland law, held that an employee stock ownership plan (“ESOP”) created by NSR was invalid and unenforceable because the primary purpose of the ESOP was to thwart a competitor’s takeover offer rather than to provide employees with benefits, and thus, was in violation of Maryland’s “primary purpose test.” Under Maryland law, the “primary purpose test” is applied to determine the validity of stock issuances that have the effect of consolidating or perpetuating management control. See Mountain Manor Realty, Inc. v. Buccheri, 55 Md.App. 185, 461 A.2d 45, 53 (Md.Ct.Spec.App.1983). Under that test, transactions can be deemed invalid if a court finds “that the purpose of the transaction was primarily one of management’s self-perpetuation and that that purpose outweighed any other legitimate business purpose.” Id.
It is undisputed that one purpose of Emmis’s creating the Retention Plan Trust and reissuing to it the 400,000 shares of Preferred Stock was to sufficiently dilute the number of Preferred Stock shares to enable Defendants to acquire voting control. However, Plaintiffs are unlikely to be successful in establishing that such a purpose or strategy renders the employee benefit plan invalid under Indiana law, thereby preventing Defendants from voting those shares. Plaintiffs have not pointed to, nor are we aware of any test under Indiana law similar to Maryland’s primary purpose test. To the contrary, the IBCL expressly repudiates the application of legal decisions from other states that apply stricter scrutiny on directors’ decisions than that provided for under Indiana’s business judgment rule, which states in relevant part as follows:
Certain judicial decisions in Delaware and other jurisdictions, which might otherwise be looked to for guidance in interpreting Indiana corporate law, including decisions relating to potential change of control transactions that impose a different or higher degree of scrutiny on actions taken by directors in response to a proposed acquisition of control of the corporation, are inconsistent with the proper application of the business judgment rule under this article.
Ind.Code § 23-l-35-l(f); See also 20 Indiana Practice § 47.11 n. 11 (citing NCR as an example of a case that would be inapplicable under Indiana law).
Indiana law clearly provides that a corporation may vote its own shares if they are held in an employee benefit plan. It imposes no further qualifications on the creation of such a plan. In the case at bar, the Board exercised its business judgment in deciding to approve the resolutions establishing the Retention Plan Trust and in allowing Emmis to direct the vote of the stock placed therein, a decision of which a majority of the disinterested directors approved. Although Plaintiffs accuse Defendants of nefarious motives in creating the Retention Plan Trust, the evidence shows that Emmis employees have been told that the shares placed in the Trust were placed there for their benefit and will be available for distribution to employees who remain with the company for at least two years.
B. Federal Claims
1. Tender Offer Disclosures
Plaintiffs contend that Defendants violated Sections 13(e), 14(e), and 10(b) of the Securities Exchange Act by failing to file a tender offer statement in October or November 2011 before soliciting Preferred Shareholders to enter into the TRS transactions.
The purpose of the Williams Act amendments to the Exchange Act, which added Sections 13(e) and 14(e), “was to insure that public shareholders facing a tender offer or the acquisition by a third party of large block of shares possibly involving a contest for control be armed with adequate information about the qualifications and intentions of the party making the offer or acquiring the shares.” Indiana Nat. Corp. v. Rich, 712 F.2d 1180, 1183 (7th Cir.1983) (citations omitted). The Williams Act requires “ ‘the disclosure of pertinent information to stockholders when persons seek to obtain control of a corporation by a cash tender offer or through open market or privately negotiated purchases of securities.’” Id. (quoting 113 Cong. Rec. 854 (1967)). Neither the Williams Act nor the SEC’s regulations define “tender offer,” and, as a result, the Seventh Circuit has recognized that the term “has been frastratingly difficult to encapsulate.” Lerro v. Quaker Oats Co., 84 F.3d 239, 246 (7th Cir.1996).
In assessing whether a tender offer occurred, courts have often applied an eight-factor test for determining what constitutes a tender offer set forth in Wellman v. Dickinson, 475 F.Supp. 783 (S.D.N.Y.1979), aff'd on other grounds, 682 F.2d 355 (2d Cir.1982). The eight factors are:
(1) active and widespread solicitation of public shareholders for the shares of an issuer; (2) solicitation made for a substantial percentage of the issuer’s stock; (3) offer to purchase made at a premium