royalty provision and the licensing agreement made biglari in the board removable that does so because the royalty provision if triggered would cripple the company destroying up to eighty percent or more of its net revenues second  capital transaction i'll call people our capital b c because we have the multiple be glorious gave mr glory at least five years control over at least three hundred twenty six million dollars of the company's assets and gave him the loss of sixteen percent control block of the company stock  it does so without deliberation or evaluation of these two critical components of the transaction it also allowed him to evade a shareholder imposed compensation cap where previously his compensation had been restricted to ten million dollars now because the holdings would pay c uncapped compensation which could total tens of millions of dollars a year more than that ten million dollars figure finally it was the rights offering which the company itself described as in lieu of a dual class share structure  share structure is a way traditionally of consolidating control in one share class while still continuing to increase equity effectively retaining voting rights or expanding voting rights for that preferred class holder and the company described the rights offering is in lieu of that meeting to consolidate big lorries voting control we submit respectfully that we've raised the requisite reasonable doubt as to three or more of the company's directors below and above respondents do not dispute that as business you know what is the record show about the directors their their qualifications their relationship so of these powers of their i would say that's true of cooley and i would say cooper has a lot of overlapping ties below we made arguments as to all six we've abandoned as to three of the respondents the only ones we pressers to cruelly and cooper cooley was his college professional professor has known him for approaching sixteen years at this point in time taught him what was involved in b c c from its founding b c c was founded back in two thousand so predating that you thousand a takeover they work together on those matters cooper likewise has been a long term investor in the lion fund which b c c is comprised of two funds line fund one and mind fun to cooper's a long term investor with hundred seventy thousand dollar interest in the line funds and he benefited from the transaction biglari himself described it to his limited partners at the line from the non biglari holdings limited partners he said that one of the benefits to them of this transaction that b c c repurchase in two thousand and thirteen was that it would use reduce administrat costs of the transaction so he benefited in terms of protecting that transaction the other tight that we identified in the record between cooper and big lorry is that cooper has an entity called ascot management and they both a deadlock that impedes the company as well so if half of our have a disqualifying interest we win but we further submit that as to the other four non coolly and non big lorry that they felt have re we raised the requisite reasonable doubt and at this stage the standard is that we need to raise a reasonable doubt not conclusively disprove the business judgment and we submit considering both the deliberations and the substance of these three transactions shows the requisite reasonable net doubt as to the exercise of its judgment first talking about a licensing agreement that agreement opposed to two and half percent royalty contingent it doesn't kick into effect unless there's a triggering event but if that kicks in the company would have to pay mr biglari to an after set of gross revenues that exceeds eighty percent of net operating earnings based on two thousand and twelve figures meaning the most recent year before figures the way the math works out on that is in two thousand and twelve company at seven hundred forty million and the earnings so soon after center that is excessive eighteen million dollars twenty one and a half million and net earnings so well over eighty percent of net earnings would go to mr biglari because the court might imagine paying eighty percent plus of net earnings for a company for a five year period destroys it or at least fundamentally alters the business that has the immediate effect of immediate effect of deterring would be acquirers deterring proxy contests similar it's a it's a long time ago case but the court wrote in dynamics court for c t s many years ago talking about a poison pill that is implemented for entrenchment purposes that when it's done to impede acquires and p proxy contest that's classic entrenchment and a royalty of this provision of this magnitude is classic entrenchment what's particularly pernicious though is that it was done without meaningful deliberation one would expect that in the event the board were going to impose such a draconian royalty there would be a lot of valuation analysis a lot of cost benefit both on what the asset side is and what the liability side of contingent liability side is none of that is evident what we have the sum total of the end of the liberations is a one and a half page memo from an intellectual property tourney not a valuation of assess saying well there's some history of similar type of agreements and there's a reference to an agreement with martha martha stewart putting aside the difference between martha stewart versus home products and mr biglari versus burgers and steaks which i think facially is incomparable the scope of and it's really elective at the company what ms stuart's royalty the memo says provides is that should martha stewart is any desire to continue to sell martha stewart branded products they can do so but they have to pay a royalty basically they make a choice is it in our business interest to continue to sell these products or if it's not we cease to sell them and move on to other lines of product here the royalty is effectively inescapable it doesn't apply there is no option to terminate there's no option to pivot the business it would have the effect of two thousand and twelve numbers reducing eighty percent plus of gross revenues so again particular concern the permission snus of the royalty coupled with the minimalist deliberations in the fact that the even that attorney's work product was shared with mr big lorry and that he drove the transaction renders the raises the requisite reasonable doubt as to business judgement one final thought in opposition what respondents say is well wait the company here got valuable intellectual property and that's the consideration to support this but actually the trademarks at issue were not ever first registered until many weeks after this transaction closed so if this is truly valuable intellectual property one would surmise it would have been safeguard very least register with the trademark office prior to this transaction if not many years before so the trademark involved or the involved in adding the glories name so the specific trade and i never heard of him for this case either your honor he's not again there is no deliberation and this is where the reasonable doubt comes in it's not like the board said hey big lorry is going to attract additional capital of x amount or increase expected returns by on is precisely where we're troubled there's no asset that we can discern the quote unquote asset is the trademarks which aren't registered until after the fact but even assuming there is some peppercorn of an asset there's no deliberations basic any kind of major transaction one would start here is the asset here is the liability wholly absent from this kind of deliberation here and we think that alone particularly coupled with that memo itself is first sent to the governance company sation nominate committee precursory it's first sent to them and it january eleventh package that same day the agreements approved so it's not like this was the beginning of some long process where they started very basically and over the course of months or weeks multiple  actual analysis which says we're going to start with this range the towers watson towers parent gave us and we're going to make adjustments but what it doesn't account for at all doesn't even mention is that could terminus lead with that transaction the company  three hundred twenty six million dollars in additional securities to mr biglari locks it up for a minimum five years that gives him a voting block so he can outvote the securities and there is a unique future of indiana law this court decided the summer case called core opportunities retired or they're outstanding indiana has this kind of intermediate status which is unique and so what biglari does is exploiting that and there's nothing sudden opinion there's nothing permissions about that per se in indiana law the question is if it's done in a matter that's exploitive and for entrenchment purposes that's where the requisite reasonable doubt is raised as to these issues so again there's no valuation component to the voting rights no valuation component to the fact that he's now able to his compensation cap what happens and bargain for shareholder cap and also as an oversight matter because of the five year lock up if the board were to say after two years you know what the performance has been poor or we have a better option to preclude it from doing so it's locked up for a minimum five years we think again there's no deliberations on this these are major transactions again as i said before in two thousand and twelve that profits were twenty million dollars so we're not talking about some hundred billion dollars conglomerate where this is immaterial they're insignificant this is the entirety of the franchise and you're effectively giving away the entire the franchise with no deliberation no valuation as to what those deliberations do include though we issue in our expert report professor black takes issue with one of the material to duction if they do make they do make a one point seven million dollar adjustment which kind of halves their bottom line valuation do you suppose a bonus obligation owed to mr biglari but that again is not that in your opening brief our pages ten and twelve where i believe we raise it to ascot holdings part is on a footnote on one of those pages and in the body there we talk specifically about mr cooper's long term interest in the company another instance where that appears in the record it using this court's docket entries docket entry twenty dash three page four forty seven specifically quantifies mr cooper's interest but i think the reference to hooper's interest is both in the complaint and repeatedly in the record but again as to as to the other two there's no dispute as to the second prong i believe there is no dispute finally turning to the last transaction the rights offering issue here is that this kind of cascades with other two transactions we have several months before this likeness agreement is like saying agreement which effectively makes big lowering the short removable shortly thereafter a few months thereafter we have this b c c transaction which locks up securities and this  kind of the last you dropping it made of the control ultimately gained by this is less than the first two transactions but the point is is that this was done again without deliberation without meaningful consideration done by unanimous consent of the g c n and again it has further the effect of increasing mr b lauri's holdings at the expense of minority shareholders so unless the court has for the question of that reserve rights raised great deal of money that it raised seventy five million dollars which obviously seventy five million is seventy five million but again if you look at that it's following the p c c transaction big lorry control is the capital allocator he basically has sole discretion allocation he can now should he wish move that to big large capital and that becomes instead of the three hundred the ownership share them i mean it was point seven percent the sixty the big sixteen percent block comes with the p c c transaction that's rerun one last point there's a statement that in the opposition that hey you know you say the agreement proxy contest but in fact in two thousand and fifteen there was a proxy contest and what we say in reply and cite articles that subject edition notice for this point is that the proxy advisors i assess and other advisors say don't vote against big laurie because you're going to pay one hundred important there was a proxy contest the shareholders of the company could have voted for any one of the replacement of the board members for the replacement of the board members other than mr b laurie for the  replace one of the board members who voted for any of these transactions all of which were highly publicized by the people who ran the proxy contest all of which were it issue in the suit that was brought by the plaintiffs the shareholders knew about each one of these transactions when they were asked to relates to the demand futility issue i think what i think look the plaintiffs are trying to put atmospherics forward your honor and i think those atmospherics are important to know that demand futility especially in indiana is a statement by the legislature that it wants boards and that that then at a remove shareholders writ large to control a geisha not single shareholders not plaintiffs and with all due respect to the court in indiana and this court not courts boards make better decisions for instance there's a lot of rhetoric in this case about one hundred million dollars well the demand is supposed to be that it is for the board it was never made roger that's right there was no demand and i know this question is whether it given the composition of the board and their deference to the glory and so on whether there would be any point right now absolutely in the standard is the following was any member of the board so conflicted that no reasonable fact finder could think they would fairly take a look at the demand there's concession as to three members of the board that leaves three well but you made it clear when mr wagner was presenting he's not a famous person he is a very very prominent investor your honor and boards are our delegated this strategy is it worth it is it worth it in the long run this is a this is a licensing agreement it cost zero dollars mr wagner misspoke actually it is not irredeemable the board if it wants to at a change of control can forgive the payment nothing in this record so first of all there's no allegation as to three of the six members we conceded below dr cooley there was no proof put on we conceded dr cooley we may not have to mr cooper the sole allegation with regard to mr cooper is that he's an investor in the lion fund do you know who the largest investor in the line fundus the shareholders of people are holdings the the one claim disqualification of mr cooper is that his economic interest is utterly aligned with the shareholders of the company that can't be a disqualification obviously it's a well stated premise of new york stock exchange listening rules and all the various shareholder advisory boards that we want board members to be invested in securities of the companies that they represent that's what mr cooper has done he's invested and it's all over the record in fact they point to the fact and i think that's correct we also want independent board members we do your honor and think about i want all of board members to be invest in the company we don't want all the board members to invest in the company while there are others who are in on this board so that's that's fine but we want some that are and some that are mr cooper is one who has the exact same financial interest in your arguing about the composition of the board rather than this first train first transaction the fact that it gives him the opportunity eventually to to obtain virtually the entire income of the of the company that's that's a canard or honor it's an absolute canard so first of all if your order looks which is in the record at the annual report of the company the company right now as of the end of two thousand and fourteen holds seven hundred sixty six point six million dollars in cash marketable securities and investments none of that money is subject to this agreement honor because if you look at the amount of money that's been made over the years and the way that the increase in the investments and biglari holdings told all its shareholders our purpose is to invest your money that's what we do we invest your from two thousand and eleven there was two hundred fifty two million dollars in such investments two thousand and twelve three hundred seventy eight two thousand and thirteen three hundred sixty five and two thousand and fourteen seven hundred sixty six million dollars constitutes a large fraction of the no net worth what as your honor understands but as the board understood as well or better revenue and income are two matters that can be adjusted based on the strategic goals the company so for instance as the company grew these investments greatly it has certain tax liabilities it could to realize much more income if it wanted to but it's decided not to announce all publicly disclose because it doesn't want to undertake never argued that he's conflicted in the opening brief not not a single time we searched through the brief and put in the words cooper and conflict and it doesn't turn up in that brief and the court may do that so there's not a there's not a real argument here that it's conflict aboard and what indiana log more so than any other state's law in this country says is you give it to that board and for these reasons your honor we're we're talking about complicated numbers whether or not you'd want to income from revenue what kinds of tax liabilities the company's going to have from the three quarters of a billion dollars that mr biglari made for the company those are decisions that board should make because they understand it mr wagner said several times net worth of the company that's let me i can respect unpack it for your honor because it's tricky math it's two point five percent of gross revenues which by any measure is a modest measure it's not fifty percent it's not seventy five percent in a given year a company may especially in investment company may decide to realize revenues in various ways for instance if you are holding has had five hundred million dollars of securities gains in the last few years if it holds them it and it has no tax if it sells them it realizes income but no revenue so there's this giant pot of money sitting over here that's never subject to the to the agreement but could greatly increase income if the company wanted to and it wanted to take the taxes on it so the idea that because the company made a policy decision in one year to not paying income taxes and that this would somehow devastate the profitability the company is not true it flies in the face of facts but also it again underlies my boards decide these things the board knows the board has these financial fix statements in front of it the board talks to the c f o and the board makes policy decisions which by the way are written in the end you report about what it wants to do about the taxation of these ships securities that owns what it wants to do about investments so i understand that that the numbers sound big when put that way but they're not the company could have realized a profit on five hundred million dollars of securities if it wanted to and that would have an enormous effect on the income and it would make two point five percent of its operating revenues virtually meaningless now i underline though your honor the fact that mr wagner is wrong anyway that this agreement if for instance a company wanted to acquire biglari holdings can basically be thrown away by the board all of whom has a fiduciary duty to shareholders right now and all of them can be challenged at that time not a dime has been paid under this agreement right now there's no damage if it becomes relevant somebody can challenge the board members of that when we have some real facts but right now it's it's really asking this court on very limited information to second guess a fully informed and very  board the majority of which there is no challenge to their independence we don't claim mr biglari was independent i think with connection to the b c c transaction which was raised i think the important thing to keep in mind there is in two thousand and ten biglari capital corp was owned by biglari he sold it to the company for one dollar it's undisputed in two thousand and thirteen he bought it back it's undisputed for one point seven million dollars it it's difficult for me knowing those facts to wonder why that's an unfair transaction of the company that it seems to me out of the business judgment rule if the one dollar property in two thousand and ten got sold back for a dollar that would be perfectly fa reasonable the company worked out a transaction word derived a one point six million dollar profit and there's nothing about the fully disclosed fully vetted b c c transaction that in any way disadvantages the company it's the same economics that it had before as the company stated in its i c c filings the reason for it was certain people analysts and shareholders said it would be much easier to understand a corporation if this were impact company disclosed that it's i think the district judge even quotes it and that's the reason for that transaction nothing more finally the rights transaction is you know again i think this really shows the level to which the are trying to second guess a board it's an unmitigated boon to the corporation the corporation makes seventy five million dollars mr big laurie gets and again i guess one thing i'd like to say is you know the speculation in the complaint almost always turns out to be untrue in this case there's speculation that there will never be a proxy contest because of the because of the licensing agreement lonely hole there's a proxy contest there's speculation that mr b his voting percentages because the because of the rights offering he got six hundred thirty seven more votes or shares than he had before six hundred thirty seven it did nothing to increase his control what it did was again the compan seventy five million dollars at a very competitive price moreover it benefited all existing shareholders because it was sold to them at a discount so when you when you start to really unpack these transactions and look at the merits of them which the board did and which is the board's job you can see that they're utterly fair to the corporation but that's not my burden right my burden isn't to show as plaintiffs wanted to be that these are good deals or these are deals that this court would indorse my burden is to show under indiana law that the board didn't engage in reckless or willful misconduct that's the level of bad stuff they had to do it's not the familiar delaware standard of  irrationality which is a very high standard it is whether or not the board and gauged in reckless or willful misconduct and i suppose i submit that this doesn't come close to that and to the extent that anybody has any questions about i understand that your honour's view is that mr blair is not a well known person he's a very prominent investor and i guess the way that it was put to the board and thought about by the board is what's the tree stand why this is what is his name yes sophisticated investors don't care whether his name is in the is in there advertising right well we're not necessarily just going after sophisticated invest covered very vastly on websites like the motley fool and the kind of i want to call them day traders the kind of sites that people follow when they're looking to invest small amounts of money but i think there's there are two reasons here are the first is if somebody could've gotten a trademark to warren buffett's name for free in one thousand nine hundred sixty three at the price of having him around they would have done it and iran or can disagree with this board that mr lars the new buffett that's what this  twenty one million that's right so he would walk away with with most of the earnings first of all your audiences if he had been removed as c e o and so on three things first of all no payments have been made secondly the board's not the question right i understand the board is able to decide it and particularly in this company how much income it's going to realize from its investments so for instance in the next year right your honor between two thousand and twelve and two thousand and thirteen it gained approximately i'm going to do the math around two hundred fifty million dollars in investments directed by mr biglari it chose not to realize those gains and so its income is lower and so and look obviously that's why they've cherry pick the number of income right but those are gains to the shareholders they own that it's an increase in the value of the company the board just chose not to pay taxes on it and realize income but it can and it can when it thinks it's the right time and so it's again your honor it's a canard to say that one year's income that got set when the company knew it didn't have to pay is somehow a measure of the the economic impact of this there are seven hundred sixty six million dollars sitting in a piggy bank right here that's never affected by that contract and it's growing every day that's that's based on and if you're twenty fourteen twenty fifteen we'll expect to be much higher so it really is a matter of the board can control and understand these numbers and that's why it's designated value to them what was that what were the i don't know that of the income statement or from your are i guess i would gather that it was kept low because there's a substantial investment game that's marked from three six thirty five to seven sixty six and there's commentary in the end of a report about not wanting to pay taxes on that income so not want to realize that income and pay taxes on it so i would gather it was kept low this is a long term growth company it's taking the money earns and it's not realising it as income it's investing it that's what it does that's what its shareholders are told it goes and so to say that if you look at net revenue or rather gross revenue and its impact on net income is somehow the financial health of the company it's absolutely wrong and the board knows that and investors know that again your honor if the investors were up in arms about this transaction which they fully knew about they could kicked out every single board member except mr biglari and they could've gotten they could have taken what they wanted that's not what they did they voted everybody back in one other matter before our emotional as a question good i think it's important that i don't think it's outcome determinative here i think the court obviously has taken a searching look at this case and i think we went under to novo i think this court's law is that you review this case for an abuse of discretion i think there's a little bit of confusion is that mean i think that it's the same standard that you i wish someone would tell me what kinds of discretion i think that you take the district court's well reasoned opinion unless you find that she has made clear errors of law or has made it clear errors in adopting inferences that you  so that's i agree with her on that i think here abuse of discretion means again and in a particularly in this case where full document discovery was granted to the plaintiffs where they had every piece of paper they'd have after summary judgment and where the port one of the main areas of expansion for steak n shake right now is the middle east that's where they're targeting it's a company that's mature in the united states the middle eastern europe or where they're going middle east yes kuwait riyadh out and they're and they're extraordinarily syria syria not but libya i think they have eight stores in riyadh and their franchise stores and mr big laurie is actually a very high profile person in the middle east and he's a famous guy for having escaped iran with his parents hidden out in istanbul as a kid company united states and made a great success of themself and so there is a cache to his name there that's higher than it is here in the restaurant industry that's right i'd like to walk through the numbers because there were some confusion i think in what mr clarke said the two inputs are gross revenues which is the two and a half percent is paid up and they were comparing that to net revenues which is another way of saying profitability the tour in two and a half is off gross revenues and what you heard from mr clarke as well focusing on net revenues in one year is misleading in the record we have in this is docket entry twenty dash to page one eighteen we have the five year earnings preceding this two thousand and thirteen  in two thousand and twelve back to two thousand and six less the court think we cherry pick i'd like to talk about two thousand and nine we talk about two thousand and twelve and two thousand and nine the royalty that would be due to mr big lorry would be two hundred sixty one percent of net earnings i  hundred sixty one percent profit they'd have to dick dip into their investments to pay back and you heard well the company's had a lot of investment gains but investment gains are not the same as net if not earnings there's going to be s g and a expenses there is go taxes there's all sorts of expenses that would have to get paid before you get to that net earnings figure and then the whole of net earnings are sometimes two hundred sixty one percent of it get wiped away and i can do if the court would like the mathematics on that you sixty one it's six hundred twenty but over over five years your honor their net earnings never hit over thirty million so this is not a nice their highest rate seated yet and they were as low as six million so this twenty one and a half is kind of down main street they've been slightly better and they've been quite a bit worse year trailing period as far as the statement that in a proxy contest they could get rid of the whole order that's completely untrue one of the triggers perhaps the most pernicious trigger in the likeness agreement is that there's a change of control i e the majority the board gets turned over the payment goes to mr biglari and that's not a matter for the board to a if it goes to mr biglari he would have to personally waive it he doesn't want to do that he doesn't want to give up his voting block he doesn't want to give up his ten million base compensation plus the b c c opportunity to made it there's simply no reason to believe he would have done it in fact he was going to waive it i'm not sure why he would have bothered with these transactions to begin with but again there's no deliberation of that fact there's no consideration a brief have here lastly on the dyno versus abuse of discretion i agree with your honor it's telling you when you talk about some instances where i know if you stretch implies amending a place for example you can see issues of undue delay and that's you know where you have trial court deference we don't have any of these type of the new delay sort of issues here and again the standard here has weaver it has have we raised a reasonable doubt we submit we have and that means that it's a legal error to find otherwise ok well thank you very much thank you