Gradient OC Master, Ltd. v. NBC Universal, Inc.

As part of a restructuring plan, NBC Universal, Inc. (NBCU) (defendant) acquired preferred stock in ION Media Networks, Inc. (ION) (defendant) as well as a call option to acquire a controlling share of the common stock. For government-compliance purposes, the call option was transferred to Citadel Investment Group LLC (CIG) (defendant). CIG exercised the call option and made a tender offer for the remaining shares of common stock. For the next step, ION proposed a vote on an exchange offer in which ION’s senior preferred stockholders would exchange their shares for subordinated notes and shares of a new series of preferred stock. However, the offer included two contingencies. First, if more than 50 percent of the senior preferred shares were tendered, the subordinated notes and new shares of preferred stock received in exchange would be elevated, ranking senior to any unexchanged preferred stock. If, however, 50 percent or less of the senior preferred shares were tendered, the notes and shares received by tendering holders would rank junior to any unexchanged preferred stock. Second, if less than 90 percent of senior preferred shares were tendered, NBCU and CIG preferred shares would be eligible for exchange for subordinated debt with priority over the unexchanged ION preferred stock. In addition, acceptance of the offer by ION preferred shareholders would eliminate restrictive covenants—including ION’s obligation to repurchase preferred shares upon a change of control—for the remaining ION preferred shares, thus affecting the rights of the nonparticipating senior preferred shareholders. Holders of two classes of ION senior preferred stock (the senior preferred stockholders) (plaintiffs) brought suit in the Delaware Court of Chancery, seeking a preliminary injunction.