IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND DAVID SYDNEY, SWC PHOENIX FUND I, L.P., MARTIN NOVICK, J RENEE BRENNAN LIVING TRUST, SCOTT SCHROEPFER, KENNETH KAMHOLZ, JOE SPEISER, and ELBERT CAPITAL I LLC, Individually and On Behalf of All Others Similarly Situated, Plaintiffs, v. CEDAR REALTY TRUST, INC., CEDAR REALTY TRUST PARTNERSHIP, L.P., WHEELER REAL ESTATE INVESTMENT TRUST, INC., BRUCE J. SCHANZER, GREGG A. GONSALVES, ABE EISENSTAT, STEVEN G. ROGERS, SABRINA KANNER, DARCY D. MORRIS, RICHARD H. ROSS, and SHARON STERN, Defendants. Case No. 8:22-cv-1142-GLR THE CEDAR DEFENDANTS’ MEMORANDUM OF LAW IN OPPOSITION TO PLAINTIFFS’ MOTION FOR PRELIMINARY INJUNCTION Case 8:22-cv-01142-GLR Document 30 Filed 05/25/22 Page 1 of 43 TABLE OF CONTENTS Page -i- INTRODUCTION ......................................................................................................................... 1 BACKGROUND ........................................................................................................................... 4 A. The Asset Sale And Subsequent Merger. .............................................................. 4 B. The Articles Supplementary Determine The Preferred Stock Rights. ................... 7 ARGUMENT ............................................................................................................................... 10 I. PLAINTIFFS ARE UNLIKELY TO SUCCEED ON THE MERITS OF ANY OF THEIR CLAIMS. ............................................................................................................. 11 A. Plaintiffs Will Not Be Able To Prove Either Breach Of Contract Claim. ........... 11 1. No Liquidation Preference Is Due. .......................................................... 11 2. The Wheeler Merger Is Not A “Change of Control” And Preferred Stockholders Are Not Entitled To Convert To Common Stock. ............. 17 B. Cedar Has Not Breached The Implied Covenant Of Good Faith And Fair Dealing. ................................................................................................................ 22 C. Preferred Stockholders Are Not Owed Anything Beyond Their Contractual Rights, Which Have Not Been Violated. ......................................... 25 II. PLAINTIFFS WILL NOT SUFFER IRREPARABLE INJURY ABSENT AN INJUNCTION. ................................................................................................................. 28 III. THE BALANCE OF THE EQUITIES AND PUBLIC INTEREST DO NOT FAVOR AN INJUNCTION. ........................................................................................... 32 IV. IF AN INJUNCTION DOES ISSUE, PLAINTIFFS SHOULD BE REQUIRED TO POST A SUBSTANTIAL BOND. ............................................................................ 33 CONCLUSION ............................................................................................................................ 35 Case 8:22-cv-01142-GLR Document 30 Filed 05/25/22 Page 2 of 43 ii TABLE OF AUTHORITIES Page(s) Cases Amazon.com v. WDC Holdings LLC , 2021 WL 3878403 (4th Cir. Aug. 31, 2021) (per curiam) .......................................................31 Atl. Contracting & Material Co. v. Ulico Cas. Co ., 844 A.2d 460 (Md. 2004) ........................................................................................................21 Bethesda Softworks, L.L.C. v. Interplay Ent. Corp. , 452 F. App’x 351 (4th Cir. 2011) ............................................................................................28 Blondell v. Littlepage , 991 A.2d 80 (Md. 2010) ..........................................................................................................22 Blue Chip Cap. Fund II Ltd. P’ship v. Tubergen , 906 A.2d 827 (Del. Ch. 2006)..................................................................................................26 Buffalo Wings Factory, Inc. v. Mohd , 2008 WL 4699803 (E.D. Va. Oct. 23, 2008) ...........................................................................31 Deckert v. Independence Shares Corp ., 311 U.S. 282 (1940) .................................................................................................................31 DeLeon Enters., Inc. v. Zaino , 608 A.2d 828 (Md. Ct. Spec. App. 1992) ................................................................................20 Della Ratta v. Larkin , 856 A.2d 643 (Md. 2004) ..................................................................................................25, 28 Di Biase v. SPX Corp. , 872 F.3d 224 (4th Cir. 2017) .............................................................................................10, 28 Dixon v. Cost Plus , 2012 WL 2499931 (N.D. Cal. June 27, 2012) .........................................................................32 Dodocase VR, Inc. v. MerchSource, LLC , 2018 U.S. Dist. LEXIS 48654 (N.D. Cal. Mar. 23, 2018) .......................................................30 Doe v. Pittsylvania Cnty. , 842 F. Supp. 2d 927 (W.D. Va. 2012) .....................................................................................35 Dumbarton Imp. Ass’n v. Druid Ridge Cemetery Co ., 73 A.3d 224 (Md. 2013) ..........................................................................................................21 Case 8:22-cv-01142-GLR Document 30 Filed 05/25/22 Page 3 of 43 iii Eisenberg v. Chi. Milwaukee Corp ., 537 A.2d 1051 (Del. Ch. 1987)................................................................................................28 Equity-Linked Invs., L.P. v. Adams , 705 A.2d 1040 (Del. Ch. 1997)................................................................................................26 In re FLS Holdings, Inc. S’holders Litig. , No. CIV. A. 12623, 1993 WL 104562 (Del. Ch. Apr. 2, 1993) ..............................................28 Frederick Hsu Living Tr. v. ODN Holding Corp ., 2017 WL 1437308 (Del. Ch. Apr. 14, 2017) ...........................................................................27 Gabhart v. Gabhart , 370 N.E.2d 345 (Ind. 1977) .....................................................................................................25 Gale v. Bershad , 1998 WL 118022 (Del. Ch. Mar. 4, 1998)...............................................................................26 Hoechst Diafoil Co. v. Nan Ya Plastics Corp. , 174 F.3d 411 (4th Cir. 1999) ...................................................................................................34 Hughes Network Sys., Inc. v. InterDigital Commc’ns Corp. , 17 F.3d 691 (4th Cir. 1994) ...............................................................................................29, 31 Impac Mortg. Holdings, Inc. v. Timm , 255 A.3d 89 (Md. 2021) ..........................................................................................................16 Jedwab v. MGM Grand Hotels, Inc ., 509 A.2d 584 (Del. Ch. 1986)..................................................................................................27 Jolly Roger Fund, LP v. Prime Group Realty Trs. , 2007 Md. Cir. Ct. LEXIS 10 (Md. Cir. Ct. Aug 16, 2007) .............................................. passim Kimeldorf v. First Union Real Estate Equity & Mortg. Invs. , 309 A.D.2d 151 (N.Y. App. Div. 2003) .......................................................................... passim L & H Enters., Inc. v. Allied Bldg. Prods. Corp. , 596 A.2d 672 (Md. Ct. Spec. App. 1991) ................................................................................15 LC Cap. Master Fund, Ltd. v. James , 990 A.2d 435 (Del. Ch. 2010)............................................................................................26, 27 M.A.B. v. Bd. of Educ. of Talbot Cnty. , 286 F. Supp. 3d 704 (D. Md. 2018) .........................................................................................29 Malon v. Franklin Fin. Corp ., 2014 WL 6791611 (E.D. Va. Dec. 2, 2014) ......................................................................11, 32 Case 8:22-cv-01142-GLR Document 30 Filed 05/25/22 Page 4 of 43 iv Marcus v. W2007 Grace Acquisition I, Inc. , 203 F. Supp. 3d 332 (S.D.N.Y. 2016)......................................................................................25 Mikeron, Inc. v. Exxon Co., U.S.A. , 264 F. Supp. 2d 268 (D. Md. 2003) .........................................................................................23 Nationwide Mut. Ins. Co. v. Regency Furniture, Inc. , 963 A.2d 253 (Md. Ct. Spec. App. 2009) ................................................................................19 Nemec v. Shrader , 991 A.2d 1120 (Del. 2010) ......................................................................................................25 ODS Techs., L.P. v. Marshall , 832 A.2d 1254 (Del. Ch. 2003)................................................................................................35 Orkin v. Jacobson , 332 A.2d 901 (Md. 1975) ........................................................................................................15 Orlando v. CFS Bancorp, Inc ., 2013 WL 5797624 (N.D. Ind. Oct. 28, 2013) ....................................................................11, 33 Parker v. Columbia Bank , 604 A.2d 521 (Md. Ct. Spec. App. 1992) ................................................................................23 Parshall v. HCSB Fin. Corp ., 2017 WL 3130479 (D.S.C. July 24, 2017) ..............................................................................33 Plank v. Cherneski , 231 A.3d 436 (Md. 2020) ............................................................................................19, 20, 26 Poling v. CapLease, Inc ., 2015 WL 13309114 (Md. Cir. Ct. May 13, 2015) ...................................................................25 Poling v. CapLease, Inc. , 2016 WL 1749803 (Md. Ct. Spec. App. May 3, 2016) ...........................................................25 Precision Small Engines, Inc. v. City of Coll. Park , 179 A.3d 1019 (Md. 2018) ......................................................................................................13 Prince George’s Country Club, Inc. v. Edward R. Carr, Inc. , 202 A.2d 354 (Md. 1964) ........................................................................................................12 Productos Carnic, S.A. v. Central Am. Beef & Seafood Trading Co. , 621 F.2d 683 (5th Cir. 1980) ...................................................................................................31 Quadrangle Offshore (Cayman) LLC v. Kenetech Corp. , 1999 WL 893575 (Del. Ch. Oct. 13, 1999) ..................................................................... passim Case 8:22-cv-01142-GLR Document 30 Filed 05/25/22 Page 5 of 43 v Rigby v. Allstate Indem. Co ., 123 A.3d 592 (Md. Ct. Spec. App. 2015) ..........................................................................16, 21 Sachs Capital Fund I LLC v. Em Grp. LLC , 2020 Md. Cir. Ct. LEXIS 2 (Md. Cir. Ct. May 22, 2020) .......................................................29 Savoie v. Merchants Bank , 84 F.3d 52 (2d Cir. 1996).........................................................................................................29 Shenker v. Laureate Educ., Inc. , 983 A.2d 408 (Md. 2009) ........................................................................................................22 Smith v. Shiebeck , 24 A.2d 795 (Md. 1942) ..........................................................................................................29 United States ex rel. Taxpayers Against Fraud v. Singer Co ., 889 F.2d 1327 (4th Cir. 1989) .................................................................................................31 Teradyne, Inc. v. Mostek Corp ., 797 F.2d 43 (1st Cir. 1986) ......................................................................................................31 Tiffany v. Forbes Custom Boats, Inc. , 959 F.2d 232 (4th Cir. 1992) .............................................................................................10, 28 In re Trados Inc. S’holder Litig. , 73 A.3d 17 (Del. Ch. 2013)................................................................................................27, 28 Vozzolo v. Air Canada , 2021 WL 5113387 (S.D.N.Y. Nov. 3, 2021) ...........................................................................35 Whitfield v. Liberty Mut. Grp. Inc. , 2019 WL 1099077 (D. Md. Mar. 8, 2019)...............................................................................23 Winter v. Natural Res. Defense Council, Inc. , 555 U.S. 7 (2008) .....................................................................................................................10 WSC/2005 LLC v. Trio Ventures Assocs. , 190 A.3d 255 (Md. 2018) ........................................................................................................23 Statutes Fed. R. Civ. P. 65(c) ......................................................................................................................34 Md. Code Ann., C ORPS & A SS ’ NS § 2-405.1(i) ............................................................................27 Case 8:22-cv-01142-GLR Document 30 Filed 05/25/22 Page 6 of 43 vi Other Authorities George W. Dent Jr., The Role of Convertible Securities in Corporate Finance , 21 J. C ORP L. 241 (1996).........................................................................................................17 Charles R. Korsmo, Venture Capital and Preferred Stock , 78 B ROOK L. R EV 1163 (2013) ..............................................................................................27 Case 8:22-cv-01142-GLR Document 30 Filed 05/25/22 Page 7 of 43 1 Defendants Cedar Realty Trust, Inc. (“Cedar” or the “Company”), Cedar Realty Partnership, L.P. (“Cedar Partnership”), Bruce J. Schanzer, Gregg A. Gonsalves, Abe Eisenstat, Steven G. Rogers, Sabrina Kanner, Darcy D. Morris, Richard H. Ross, and Sharon Stern 1 respectfully submit this memorandum in opposition to Plaintiffs’ Motion for Preliminary Injunction. 2 For the following reasons, the Cedar Defendants respectfully submit that Plaintiffs’ Motion for Preliminary Injunction should be denied. INTRODUCTION This is a contract case. Plaintiffs are purported Cedar Preferred Stockholders, and their rights are defined by the Articles Supplementary to Cedar’s Articles of Incorporation (the “Articles”), the contract that governs Preferred Stock. The Articles plainly and unambiguously do not entitle Plaintiffs to the relief that they now request, and this Court cannot rewrite the Articles to grant additional rights to the Preferred Stockholders that they did not bargain or pay for. Accordingly, Plaintiffs’ Motion for Preliminary Injunction should be denied. Plaintiffs’ claims arise out of two distinct transactions: first, a sale of Cedar’s grocery store- anchored assets to private buyers and second, a separate, subsequent reverse merger into a publicly listed real estate investment trust (“REIT”) that will leave Cedar as a wholly owned subsidiary of that publicly listed REIT. Together, these transactions valued Cedar at over $1.2 billion, a 70.6% premium over the unaffected common stock price. Each common stockholder is expected to 1 Each individual defendant is a director of Cedar, and they are collectively referred to as the “Directors” or “Board” and, together with Cedar and Cedar Partnership, the “Cedar Defendants.” 2 Citations to “Mot.” or the “Motion” are to the Memorandum of Law in Support of Plaintiffs’ Emergency Motion for Temporary Restraining Order (ECF No. 13-1), which the parties have stipulated will be treated as Plaintiffs’ memorandum in support of its motion for preliminary injunction. Joint Stipulation (ECF No. 23). Citations to “Mot. Ex.” are to exhibits to the Affidavit of Donald J. Enright in Support of Plaintiffs’ Motion for Temporary Restraining Order (ECF No. 13-2). Unless noted, all citations and quotations are omitted, and all emphasis is added. Case 8:22-cv-01142-GLR Document 30 Filed 05/25/22 Page 8 of 43 2 receive combined proceeds of approximately $29 per share upon the close of these two transactions. As is not uncommon in public mergers in the REIT sector, Cedar’s two series of perpetual preferred stock (“Preferred Stock”) will remain outstanding after the merger. Plaintiffs are unhappy that they will remain invested in Cedar and will not be cashed out as a result of the transactions. They ask this Court to enjoin (i) the distribution of the proceeds from the asset sale to the common stockholders and (ii) the closing of the merger and the distribution of the merger proceeds, claiming that the Preferred Stockholders, too, are entitled to participate in the distributions currently going to the Common Stockholders. But what the Preferred Stockholders are entitled to is defined entirely by the Articles, which plainly and unambiguously do not entitle Plaintiffs to the relief that they now request. This Court cannot now rewrite the Articles to grant rights and a windfall to the Preferred Stockholders that they did not bargain or pay for, and which would come at the expense of Cedar’s common stockholders. The Articles plainly and unambiguously allow Cedar to sell assets and merge with another company without triggering either the Preferred Stockholders’ liquidation preference or limited conversion right. Following consummation of the merger, Cedar will continue to exist as a company that holds 19 valuable and revenue-generating real estate and other assets (valued by the merger partner at over $291 million pursuant to an arms-length and extensively negotiated purchase and sale agreement), the Preferred Stockholders will remain invested in Cedar, and the terms of the Preferred Stock will remain unchanged. Further, Cedar’s Preferred Stock will continue to be publicly listed, Cedar will continue to file public disclosures, and Cedar will be acquired by and become a wholly owned subsidiary of a public company, Wheeler Real Estate Investment Trust, Inc. (“Wheeler”), which has, and will continue to have, publicly traded common stock. The Articles do not provide for a liquidation preference or conversion in these circumstances. Although Case 8:22-cv-01142-GLR Document 30 Filed 05/25/22 Page 9 of 43 3 Plaintiffs might now wish that they purchased preferred stock that is generally convertible into common stock, conversion is a valuable feature that the Plaintiffs did not pay for. This was not hidden from the Plaintiffs; both the prospectus and the Articles made abundantly clear from the outset that conversion rights were “ limited ,” Prospectus Supplement (Luz Ex. 3) at S-10, and that “ the [] Preferred Stock is not convertible into or exchangeable for any property or other securities of the Corporation ,” Art. Sup. (Mot. Exs. 1-2) § 7(a). And while Plaintiffs would prefer that the transactions had been structured in a way that either the liquidation preference or conversion right was triggered, Cedar and its Directors had no contractual obligation or other duty to take specific actions to benefit the Preferred Stockholders. This is especially true because the benefits that the Preferred Stockholders would like to claim come directly out of the pockets of the common stockholders, to whom the Directors owe duties prescribed by Maryland statutes. The Cedar Defendants have not breached any express or implied contract provision or any other duty to the Preferred Stockholders. No preliminary injunction should issue here, where Plaintiffs have not clearly shown that they are likely to succeed on the merits of their claims. Even if Plaintiffs could succeed on the merits of their claims, which is doubtful, Plaintiffs have not met their burden to show that they will be irreparably harmed in the absence of a preliminary injunction or that the balance of equities and public interest favor the injunctive relief requested. Plaintiffs ultimately seek monetary damages in an amount that is plainly supported by the income-generating real estate assets that will remain in Cedar after the closing of both transactions. In contrast, enjoining the distribution of the proceeds from the asset sale would cause significant, immediate harm to Cedar’s common stockholders, who would be left holding materially less valuable Cedar stock after the asset sale while the corresponding distribution is withheld from them for the duration of this litigation and likely lose forever the ability to Case 8:22-cv-01142-GLR Document 30 Filed 05/25/22 Page 10 of 43 4 participate in the premium transaction now on the table. It is not the case either that the asset sale or merger could easily be replicated should an injunction issue—each transaction was negotiated in much more favorable market conditions than exist today, and which may not exist again. No injunction should issue, and certainly not without a significant bond to protect the common stockholders from the harm that the Plaintiffs are seeking to impose on them. BACKGROUND A. The Asset Sale And Subsequent Merger. Cedar is a publicly traded REIT that owns and operates (through Cedar Partnership) a portfolio of 54 properties composed primarily of grocery-anchored shopping centers. 2021 Form 10-K (Mot. Ex. 8) at 4, 30. In addition to common stock, Cedar has two classes of outstanding Preferred Stock, Series B and Series C. Plaintiffs are purported holders of the Preferred Stock. As Plaintiffs agree, the rights of the Preferred Stock are governed by the Articles. 3 Mot. at 3. One of Cedar’s Directors, Steven Rogers, who is the Chairperson of the Audit Committee, is also an owner of Cedar’s Preferred Stock. Rogers Decl. ¶ 6. Since at least 2018, Cedar’s share price has reflected a significant discount to the net asset value of its real estate assets. Definitive Proxy Statement (Mot. Ex. 27) (“Proxy”) at 28. In response to that discount, Cedar from time-to-time explored whether the Company could maximize stockholder value by engaging in a strategic transaction and/or selling portions of Cedar’s asset portfolio. Id. Initial efforts to explore strategic alternatives were delayed by the COVID pandemic and the resulting collapse of the commercial real estate market and Cedar’s stock price. Id. at 29. 3 Articles Supplementary 6.50% Series C Cumulative Redeemable Preferred Stock (Mot. Ex. 1); Articles Supplementary 7.25% Series B Cumulative Redeemable Preferred Stock (Mot. Ex. 2). Aside from the amount of dividends or distributions, the relevant provisions and section numbering of the Articles for the Series B Preferred Stock and Series C Preferred Stock are substantively identical. Defendants refer to both Articles together as “Articles” or “Art. Sup.” Case 8:22-cv-01142-GLR Document 30 Filed 05/25/22 Page 11 of 43 5 By June 2021, there was increased investor interest in grocery-anchored shopping centers like those owned by Cedar due to their stability during the pandemic. Id. at 31. Based on this and other considerations, the Board restarted the process of considering the Company’s strategic alternatives and engaged outside financial and legal advisors to assist. Id . at 31-32. To attract a wider array of bidders and maximize the value that could be obtained, the Company pursued a “dual track” process in which the Company and its advisors solicited offers for both the sale of the Company as a whole and offers for discrete groups of Company assets, including its portfolio of 33 core grocery-anchored shopping center assets (the “Grocery-Anchored Portfolio”). Id . The Board disclosed its process in September 2021, and over the next five months engaged with 55 potential counterparties, 36 of whom entered into non-disclosure agreements with the Company, and received six preliminary proposals and four final proposals to acquire (i) the whole Company, (ii) certain assets of the Company, or (iii) the Company following a prior asset sale. Id. at 32-35. In reviewing and comparing these proposals, the Board noted that the whole- company offer received would provide less value. Id. at 35. Conversely, the Board considered that a “sum of the parts” series of transactions with separate parties offered greater aggregate value for the Company’s common stockholders, but posed greater execution risk than a single, whole- company transaction. Id. After receiving an opinion from its financial advisor that the consideration to be received by the Company’s common stockholders was fair, the Board approved agreements for two distinct transactions: an asset sale and subsequent merger. Id. at 38-39. The Board believed this dual transaction structure was most likely to maximize the value of Cedar, represented a significantly higher aggregate valuation than any of the competing bids, including the one whole-company offer, and offered a significant premium to current market value. Id. Under the agreements, Cedar will first sell the 33-store Grocery-Anchored Portfolio to Case 8:22-cv-01142-GLR Document 30 Filed 05/25/22 Page 12 of 43 6 DRA Advisors and its affiliates for a cash purchase price of $840 million (the “Grocery-Anchored Portfolio Sale”). Id. at 4. 4 The Grocery-Anchored Portfolio Sale is a standalone transaction, and there is no condition in the asset sale agreement that ties the sale to any subsequent transaction involving Cedar or its assets, including the contemplated merger. See id. at 78. As is typical following asset sales in the REIT sector, the net proceeds of the asset sale will be distributed to Cedar’s common stockholders as a special dividend. Id. at 69. Following completion of the Grocery-Anchored Portfolio Sale, Cedar will continue to own 19 real estate assets with an aggregate estimated value of approximately $291 million, which reliably and consistently generate rental income sufficient to pay dividends to Preferred Stockholders. Id. at 8, 37, 68; see also 2021 Form 10-K (Mot. Ex. 8) at 5-7. In 2021, the 19 properties generated approximately $19.1 million in net operating income, nearly double the approximately $10.8 million in aggregate dividends paid to the Preferred Stockholders during the same period. Proxy (Mot. Ex. 27) at 37. At some time after the Grocery-Anchored Portfolio Sale, Cedar will then engage in an all- cash reverse merger with Wheeler that values Cedar’s remaining assets at $291.3 million (the “Wheeler Merger”). Wheeler will acquire Cedar for $130 million cash merger consideration, with the Cedar Preferred Stock remaining outstanding (including the Preferred Stock’s $161.6 million liquidation preference). Id. at 68. The Wheeler Merger is conditioned on the Grocery-Anchored Portfolio Sale having been completed. Id. at 69, 78; see also Agreement and Plan of Merger (“Merger Agreement”) (Mot. Ex. 5) § 7.2(d). Pursuant to the Merger Agreement, Wheeler, a public company whose stock is listed on NASDAQ, will acquire Cedar by means of a reverse triangular merger, and Cedar will survive the merger and continue to exist as a wholly owned 4 To the extent two additional assets of the Company are not sold to third parties prior to the closing of the Grocery-Anchored Portfolio Sale, these assets will be acquired by DRA Advisors and its affiliates for an additional cash purchase price of $80.5 million. Id. at 68. Case 8:22-cv-01142-GLR Document 30 Filed 05/25/22 Page 13 of 43 7 subsidiary of Wheeler. Proxy (Mot. Ex. 27) at 68. Cedar’s Preferred Stock will remain outstanding at the Cedar level and will continue to be publicly traded on the New York Stock Exchange, and Cedar will continue to make required public disclosures. Id. at 7-8, 70; see also Merger Agreement (Mot. Ex. 5) § 3.1(a)(iv) (“Each share of Company Preferred Stock issued and outstanding immediately prior to the Effective Time, shall remain outstanding as a share of preferred stock in the Surviving Company.”). Following the merger, Wheeler’s common stock will continue to be traded publicly. The structure of the merger— e.g. , that Cedar Preferred Stock will remain outstanding as obligations of the post-closing enterprise—is common in reverse triangular mergers. Kranz Decl. ¶ 7. Here, by providing that the Cedar Preferred Stock will remain outstanding as obligations of Cedar, rather than being exchange for preferred securities of Wheeler, the structure ensures that Cedar’s Preferred Stock will remain senior to Wheeler and all of Wheeler’s stockholders and stakeholders with respect to distributions from Cedar’s assets. Proxy (Mot. Ex. 27) at 70. In total, Cedar’s common stockholders are expected to receive approximately $29 per share in connection with the distribution of net proceeds from the asset sale and subsequent merger. Id. at 69-70. This is a 16.6% premium to the common stock closing price the date before the transactions were announced, and a 70.6% premium to the common stock closing price the day before the dual-track process was first announced in September 2021. Id . at 39. B. The Articles Determine The Preferred Stock Rights. The Articles set forth the rights and obligations between Cedar and Preferred Stockholders. 5 The plain language of the Articles confirm that the Preferred Stockholders did not 5 Cedar’s Articles of Incorporation provide the Board with the power to “provide for the issuance of the shares of Preferred Stock in one or more classes or one or more series, with such voting powers, full or limited, or no voting powers, and with such designations, preferences and relative, Case 8:22-cv-01142-GLR Document 30 Filed 05/25/22 Page 14 of 43 8 bargain for or receive the benefits that Plaintiffs now seek through this litigation, and that Plaintiffs’ assertions cannot be used to divert proceeds of the pending transactions from the common stockholders to themselves. The Articles create perpetual—as compared to convertible—Preferred Stock. Both classes of Preferred Stock provide a fixed dividend to Preferred Stockholders for as long as the Company remains in business, subject to Cedar’s right to redeem in certain circumstances. When authorized by the Board, the Series B and Series C Preferred Stock are entitled to receive annual cash dividends of 7.25% and 6.5%, respectively, of their liquidation preference, for a combined total of approximately $10,750,000 per year. Am. Compl. ¶ 172; Art. Sup. (Mot. Exs. 1-2) § 3(a). The Articles include a “liquidation preference” of $25 per share for the Preferred Stock payable only “[i]n the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation.” Art. Sup. (Mot. Exs. 1-2) § 4(a). Neither the Grocery-Anchored Portfolio Sale nor the Wheeler Merger is a “liquidation, dissolution or winding up” under the Articles, and neither triggers the liquidation preference. While what is a “liquidation” is not defined in the Articles, § 4(e) specifically states what it is not: None of a consolidation or merger of the Corporation with or into another entity, the merger of another entity with or into the Corporation , a statutory share exchange by the Corporation or a sale, lease, transfer or conveyance of all or substantially all of the Corporation’s assets or business shall be considered a liquidation, dissolution or winding up of the Corporation Id. § 4(e). Section 4 thus explicitly and unequivocally prohibits the Wheeler Merger from being considered the type of event that triggers the liquidation preference. Id. The language also makes participating, optional and other special rights, and qualifications, limitations or restrictions thereof.” Articles of Incorporation (Luz Ex. 1) Art. IV(C). The Board exercised these powers with respect to the Preferred Stock and described the corresponding rights in the Articles. Citations to “Luz Ex.” are to exhibits to the Declaration of Jennifer Burns Luz in Support of the Cedar Defendants’ Memorandum of Law in Opposition to Plaintiffs’ Motion for Preliminary Injunction. Case 8:22-cv-01142-GLR Document 30 Filed 05/25/22 Page 15 of 43 9 clear that the Grocery-Anchored Portfolio Sale—a sale of only a portion of Cedar’s assets—is not sufficient to trigger the liquidation preference. Id. The Articles also are clear that the Preferred Stock is not convertible. Unlike convertible stock, there is no provision in the Articles that allows the Preferred Stockholders to elect to convert their Preferred Stock into common stock at any time of their choosing, although Cedar may redeem the Preferred Stock for $25 per share after certain dates. See id. § 5. 6 The Articles provide one narrow circumstance in which the Preferred Stockholders may elect to convert their shares into common stock: upon a “Change of Control” where neither the Company nor its acquiror will have publicly traded common stock, and assuming that Cedar does not exercise its right to first redeem the Preferred Stock. See Art. Sup. (Mot. Exs. 1-2) § 7. This Change of Control provision protects Preferred Stockholders from a transaction that leaves them invested in a private company without any level of public-company reporting or trading. By its express terms, this protection is narrow because the Articles define a Change of Control to include only those situations where, after a merger or transaction, there is no publicly traded common stock at any of three levels of the corporate structure: at Cedar itself, at the acquiror level (in a purchase or sale of Cedar shares), or at the surviving entity level (in a merger where Cedar does not survive). If common stock is publicly traded at any of those three levels post-transaction, then the transaction is not a Change of Control pursuant to the plain language of the Articles: [A] “Change of Control” is when, after the original issuance of the [] Preferred Stock, the following have occurred and are continuing: (x) the acquisition by any person . . . of beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of purchases, mergers or other 6 Redemptions are exclusively at the election of Cedar, not the Preferred Stockholders. Id . § 5(a) (“the Corporation will be entitled to redeem . . . in order to ensure that the Corporation remains qualified as a REIT”); see also Art. Sup. (Mot. Ex. 2) § 5(b) (“the Corporation, at its option . . . may redeem the Series B Preferred Stock” after May 22, 2017); § 5(c) (“the Corporation, at its option . . . may redeem the Series B Preferred Stock” upon a change of control). Case 8:22-cv-01142-GLR Document 30 Filed 05/25/22 Page 16 of 43 10 acquisition transactions of shares of the Corporation entitling that person to exercise more than 50% of the total voting power of all shares of the Corporation entitled to vote generally in elections of directors . . . ; and (y) following the closing of any transaction referred to in clause (x), neither the Corporation nor the acquiring or surviving entity has a class of common securities (or American Depositary Receipts (“ADRs”) representing such securities) listed on the New York Stock Exchange (the “NYSE”), the NYSE American, LLC exchange (the “NYSE American”), or the NASDAQ Stock Market (the “NASDAQ”), or listed or quoted on an exchange or quotation system that is successor to the NYSE, the NYSE American or NASDAQ . . . .; or (z) a change of control occurs pursuant to the provisions of any shareholder rights plan that may be adopted by the Corporation. Art. Sup. (Mot. Ex. 1) § 5(j); see also Art. Sup. (Mot. Ex. 2) § 5(j) (similar). The Wheeler Merger is not a Change of Control because the common stock of the acquiring entity, Wheeler, is and will continue to be listed on NASDAQ. ARGUMENT A preliminary injunction is an “extraordinary remedy.” Winter v. Natural Res. Defense Council, Inc. , 555 U.S. 7, 24 (2008); Di Biase v. SPX Corp. , 872 F.3d 224, 230 (4th Cir. 2017). A preliminary injunction may only be granted if Plaintiffs establish (1) they are likely to succeed on the merits; (2) they are likely to suffer irreparable harm in the absence of preliminary relief; (3) that the balance of equities tips in their favor, and (4) that an injunction is in the public interest. Winter , 555 U.S. at 20. Plaintiffs must make a “clear showing” that they are likely to succeed on the merits at trial. Di Biase , 872 F.3d at 230. Here, Plaintiffs’ likelihood of success is anything but clear. Their claims are foreclosed by the express terms of the Articles, and they fail to identify even a single case where preferred stockholders have prevailed on similar claims. “Similarly, [Plaintiffs] must demonstrate more than just a ‘possibility’ of irreparable harm.” Id. Yet the only relief that Plaintiffs would be entitled to should they prevail on their claims is money damages, which is not irreparable harm. See Tiffany v. Forbes Custom Boats, Inc. , 959 F.2d 232, at *8 (4th Cir. 1992) (per curiam) (unpublished table decision), as corrected (Apr. 27, 1992). Plaintiffs’ suggestion that they might have to claw back distributed funds from the common stockholders falls short of Case 8:22-cv-01142-GLR Document 30 Filed 05/25/22 Page 17 of 43 11 establishing even a possibility of irreparable harm: Cedar will continue to exist and will continue to hold valuable assets from which a judgment could be derived. Given that the relief sought would come at the direct expense of the Company’s public shareholders who would certainly be delayed (and most likely forever foreclosed) from receiving the significant premium on their investment from this over $1 billion deal in the middle of a turbulent market, 7 there can be no serious question that the balance of equities and public interest require denial of the requested injunctive relief. See, e.g. , Malon v. Franklin Fin. Corp ., 2014 WL 6791611, at *3 (E.D. Va. Dec. 2, 2014); Orlando v. CFS Bancorp, Inc ., 2013 WL 5797624, at *6 (N.D. Ind. Oct. 28, 2013). I. PLAINTIFFS ARE UNLIKELY TO SUCCEED ON THE MERITS OF ANY OF THEIR CLAIMS. A. Plaintiffs Will Not Be Able To Prove Either Breach Of Contract Claim. 1. No Liquidation Preference Is Due. Plaintiffs cannot succeed on the merits of their liquidation preference claim: the transactions—whether considered separately (as they should be) or collectively—are not a liquidation and do not trigger Cedar’s obligation to pay out the liquidation preference to the Preferred Stockholders. Thus, there can be no breach. Indeed, the entire premise of Plaintiffs’ motion is misplaced and misapprehends (or misstates) the law. Consistent with their obligations under Maryland law, the Company and its Directors structured the transactions with two goals: (1) to maximize the return to the Company’s common shareholders, and (2) to preserve all of the Preferred Stockholders rights under the Articles. What the Preferred Stockholders are entitled to is compliance with the Articles, and that is what they got. Preferred Stockholders have no entitlement to what they now seek: a rewriting of the terms of the Preferred Stock to give them a 7 For example, the S&P Global REIT index is down 8.09% since Cedar first announced the transaction on March 2, 2022 and 13.09% since it filed the Proxy on April 21, 2022. See https://www.spglobal.com/spdji/en/indices/equity/sp-global-reit/#overview. Case 8:22-cv-01142-GLR Document 30 Filed 05/25/22 Page 18 of 43 12 liquidation preference they did not bargain for so they can extract for themselves a portion of the proceeds that are set to be distributed to the common stockholders. Cedar is obligated to pay the Preferred Stockholders the liquidation preference only “[i]n the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation.” Art. Sup. (Mot. Exs. 1-2) § 4(a). While the Articles do not define “liquidation,” “dissolution,” or “winding up,” § 4(e) of the Articles expressly states when the liquidation preference is not payable: (1) “a sale, lease, transfer or conveyance of all or substantially all of the Corporation’s assets or business,” and (2) “a consolidation or merger of the Corporation with or into another entity.