in the united states district court for the ...client files/pot/01/00066953.docx } in the united...

{Client Files/POT/01/00066953.DOCX }

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

PAUL A. NOBLE, On Behalf of Himself and All

Others Similarly Situated,

Plaintiff,

v.

AAR CORP., DAVID P. STORCH, RONALD B.

WOODARD, TIMOTHY J. ROMENESKO,

NORMAN R. BOBINS, RONALD R.

FOGLEMAN, JAMES G. BROCKSMITH, JR.,

PETER PACE, MICHAEL R. BOYCE, JAMES

E. GOODWIN, MARC J. WALFISH, and

PATRICK J. KELLY,

Defendants.

No. 12 cv 7973

MEMORANDUM OF LAW IN SUPPORT OF PLAINTIFF’S EMERGENCY MOTION

FOR A TEMPORARY RESTRAINING ORDER, EXPEDITED DISCOVERY, AND

THE SCHEDULING OF A PRELIMINARY INJUNCTION HEARING

Case: 1:12-cv-07973 Document #: 7 Filed: 10/05/12 of 21 PageID #:149

{Client Files/POT/01/00066953.DOCX } i

TABLE OF CONTENTS

PRELIMINARY STATEMENT .................................................................................................... 1

STATEMENT OF FACTS ............................................................................................................. 3

ARGUMENT .................................................................................................................................. 5

I. A TEMPORARY RESTRAINING ORDER IS WARRANTED ....................................... 5

A. Plaintiff Will Prove Breach of Fiduciary Duties, and Aiding

and Abetting Breach of Fiduciary Duties ............................................................... 7

1. Injunctive Relief That Preserves the Status Quo Requires

a Reduced Degree of Proof To Establish the Likelihood of

Success on the Merits.................................................................................. 7

2. The Individual Defendants Breached Fiduciary Duties They

Owe Plaintiff and the Class......................................................................... 7

3. AAR Aided and Abetted the Individual Defendants’ Breach

of Their Fiduciary Duties ............................................................................ 9

B. Plaintiff and All Other AAR Shareholders Will Suffer Irreparable

Injury If Forced To Cast Uninformed Votes Regarding Proposal 2 ....................... 9

C. Preserving the Status Quo Would Not Prejudice Defendants and

Would Prevent Plaintiff and the Class from Casting Uninformed

Votes to Approve AAR’s Executive Compensation ............................................. 11

D. There is a Public Interest In Preventing Corporate Fiduciaries From

Submitting Matters to a Shareholder Vote Without Providing Adequate

Disclosure ............................................................................................................. 12

II. EXPEDITED DISCOVERY IS NECESSARY AND APPROPRIATE .......................... 12

A. Good Cause Exists For Expedited Discovery ....................................................... 13

CONCLUSION ............................................................................................................................. 16


{Client Files/POT/01/00066953.DOCX } ii

TABLE OF AUTHORITIES

Page(s)

CASES

A.J. Canfield Co. v. Vess Beverages, Inc.,

796 F.2d 903 (7th Cir. 1986) .....................................................................................................5

Am. Massage Therapy Ass'n v. Folkers,

308 F. Supp. 2d 899 (N.D. Ill. 2004) .........................................................................................5

Am. Stores Co. v. Lucky Stores, Inc.,

No. 9766, 1988 WL 909330 (Del. Ch. Apr. 13, 1988) ............................................................14

In re Anderson, Clayton S’holders’ Litig.,

519 A.2d 669 (Del. Ch. 1986)..................................................................................................11

In re Aquila, Inc. S’holders Litig.,

805 A.2d 184 (Del. Ch. 2002)..................................................................................................14

Burmax, Co. v. B&S Indus., Inc.,

135 A.D.2d 599 (2d Dep’t 1987) .............................................................................................11

Chevron Corp. v. Donziger,

768 F. Supp. 2d 581 (S.D.N.Y. 2011)........................................................................................7

Chi. United Indus. v. City of Chicago,

445 F.3d 940 (7th Cir. 2006) .....................................................................................................7

City P’ship Co. v. Atl. Acquisition Ltd. P’ship,

100 F.3d 1041 (1st Cir. 1996) ..................................................................................................14

Club Gene & Georgetti Ltd. P'ship v. La Luna Enters.,

889 F. Supp. 324 (N.D. Ill. 1995) ..............................................................................................5

Ellis v. Sheahan,

412 F.3d 754 (7th Cir. 2005) .....................................................................................................7

Evmar Oil Corp. v. Getty Oil Co.,

No. 76-4039-MML, 1978 WL 1067 (C.D. Cal. Mar. 17, 1978) ..............................................14

F.T.C. v. Univ. Health, Inc.,

938 F.2d 1206 (11th Cir. 1991) ...............................................................................................13

Gilmartin v. Adobe Resources Corp.,

No. 12467, 1992 Del. Ch. LEXIS 80 (Del. Ch. Apr. 6, 1992).................................................10

Grimes v. Vitalink Commc’ns Corp.,

17 F.3d 1553 (3d Cir. 1994)...............................................................................................13, 14


{Client Files/POT/01/00066953.DOCX } iii

Horizon Corp. v. Anselmi,

483 F. Supp. 653 (D.D.C. 1980) ..............................................................................................14

In re Int’l, Inc. Jensen S’holders Litig.,

No. 14992, 1996 Del. Ch. LEXIS 77 (Del. Ch. July 16, 1996) ...............................................14

Joseph v. Shell Oil Co.,

482 A.2d 335 (Del. Ch. 1984)..................................................................................................10

Karhani v. Meijer,

270 F. Supp. 2d 926 (E.D. Mich. 2003) .....................................................................................5

Laidlaw Acquisition Corp. v. Mayflower Group, Inc.,

636 F. Supp. 1513 (S.D. Ind. 1986) .........................................................................................10

Malone v. Brincat,

722 A.2d 5 (Del. 1998) ..............................................................................................................8

McMillan v. Intercargo Corp.,

768 A.2d 492 (Del. Ch. 2000)..................................................................................................10

Michigan Citizens for an Indep. Press v. Thornburgh,

No. 88-2322, 1988 U.S. Dist. LEXIS 16576 (D.D.C. Aug. 17, 1988) ....................................10

Moravek v. FNB Bancorp, Inc.,

No. 86 C 4571, 1986 U.S. Dist. LEXIS 23188 (N.D. Ill. July 3, 1986) ..................................14

In re NetSmart Techs., Inc. S’holders Litig.,

924 A.2d 171(Del. Ch. 2007).............................................................................................10, 12

Next Level Commc’ns, Inc. v. Motorola, Inc.,

834 A.2d 828 (Del. Ch. 2003)..................................................................................................14

ODS Techs., L.P. v. Marshall,

832 A.2d 1254 (Del. Ch. 2003)..................................................................................................9

Phototron Corp. v. Eastman Kodak Co.,

687 F. Supp. 1061 (N.D. Tex. 1988), rev’d on other grounds,

842 F.2d 95 (5th Cir. 1988) .....................................................................................................10

In re Pure Res., Inc. S’holders Litig.,

808 A.2d 421 (Del. Ch. 2002)..........................................................................................8, 9, 14

QVC Network v. Paramount Commc’ns, Inc.,

635 A.2d 1245 (Del. Ch. 1993), aff’d, 637 A.2d 34 (Del. 1993) .............................................14

Ronson Corp. v. Liquifin Aktiengesellschaft,

483 F.2d 846 (3d Cir. 1973).....................................................................................................13


{Client Files/POT/01/00066953.DOCX } iv

Sheridan v. Oak Street Mortg., LLC,

244 F.R.D. 520 (E.D. Wis. 2007) ............................................................................................13

In re Siliconix Inc., S’holders Litig.,

No. 18700, 2001 Del. Ch. LEXIS 83 (Del. Ch. June 19, 2001) ..............................................14

In re Staples, Inc., S’holders Litig.,

792 A.2d 934 (Del. Ch. 2001)..................................................................................................11

State of Wis. Inv. Bd. v. Bartlett,

No. 17727, 2000 Del. Ch. LEXIS 22 (Del. Ch. Feb. 9, 2000) .................................................11

Union Carbide Agricultural Products Co. v. Costle,

632 F.2d 1014 (2d Cir. 1980).....................................................................................................7

Weintraub v. Hanrahan,

435 F.2d 461 (7th

Cir. 1970) ......................................................................................................7

OTHER AUTHORITIES

Fed. R. Civ. P. 26(d) ......................................................................................................................13

Fed. R Civ. P. 26(f) ....................................................................................................................1, 13

Fed. R. Civ. P. 65 .........................................................................................................................1, 5


{Client Files/POT/01/00066953.DOCX } 1

Plaintiff respectfully submits this memorandum of law in support of his emergency

motion for a temporary restraining order, expedited discovery and the scheduling of a

preliminary injunction hearing pursuant to Fed. R. Civ. P. Rules 26(f) and 65. Plaintiff below

provides a summary of the legal framework that serves as a basis for a demonstration of

plaintiff’s likelihood of success on the merits and also seeks limited expedited discovery to

support his entitlement to a preliminary injunction.

PRELIMINARY STATEMENT

Plaintiff has brought the instant action for breach of fiduciary duties, and aiding and

abetting of breach of fiduciary duties, individually and on behalf of shareholders of AAR Corp.

(“AAR” or the “Company”), to enjoin the shareholder vote scheduled to be held at the annual

general meeting of AAR shareholders on October 10, 2012 at the Company’s corporate offices

located at One AAR Place, 1100 North Wood Dale Road, Wood Dale, Illinois 60191 (the

“Shareholder Vote”).1

On August 31, 2012, AAR filed with the Securities and Exchange Commission (the

“SEC”) a Proxy Statement on Form Schedule 14A (the “Proxy”) in connection with the

Shareholder Vote on three proposals. In Proposal 2, AAR’s board of directors (the “Board”) has

asked AAR shareholders to approve the Company’s executive compensation at the Shareholder

Vote pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act.

1 Plaintiff initially filed this action in the Circuit Court of DuPage County, Illinois County Department, Chancery

Division, Index No. 2012CH004950 on October 2, 2012. A copy of the complaint filed therein is attached as

Exhibit A to the Affirmation of Juan E. Monteverde in Support of Plaintiff’s Emergency Motion for a Temporary

Restraining Order, Expedited Discovery, and the Scheduling of Briefing and Hearing on Preliminary Injunction

Motion (the “JEM Decl.”). Plaintiff filed in the Circuit Court of DuPage County a motion for a temporary

restraining order, expedited discovery and scheduling of a motion for preliminary injunction on October 3, 2012,

and the court scheduled a hearing on that motion for October 9, 2012.

Defendant Ronald B. Woodard removed this action from the Circuit Court of DuPage County to this Court on

October 4, 2012. Plaintiff reserves his right to seek remand of the action to the Circuit Court of DuPage County on

the ground that removal to this Court was improper, but in light of the potential irreparable harm that Plaintiff faces

in connection with the imminent October 10, 2012 AAR shareholder vote, Plaintiff files the instant motion.



However, in violation of the fiduciary duties owed to them by the Board, the disclosures

provided to AAR’s shareholders regarding Proposal 2 are inadequate, and controlling Delaware

law clearly establishes that being forced to cast an uninformed vote constitutes irreparable harm.

In particular, the Board fails to disclose a fair summary of the peer benchmarking analyses

performed by the Compensation Committee’s independent compensation consultant, Aon Hewitt

Aon Hewitt, which the Board considered in recommending shareholder approval of Proposal 2.

See Knee v. Brocade Communications Systems, Inc., Case No. 1-12-CV-220249 (Santa Clara

Superior Court April 10, 2012) (enjoining shareholder vote to increase number of authorized

shares until all material information including equity grant projections disclosed)2; Hutt v.

Martha Stewart Living Omnimedia, Inc., Index No. 651249/2012 (N.Y. Sup. May 15, 2012)

(expedited discovery granted prior to shareholder vote on proposal to increase shares available

for issuance under company’s stock plan and case settled for curative Proxy disclosure prior to

shareholder vote). These Aon Hewitt peer benchmarking analyses contain critical information

regarding the Company’s executive compensation practices that AAR shareholders must have in

order to cast an informed vote regarding whether or not to approve the Company’s executive

compensation.

Exigent circumstances are present in this case, requiring this motion for a temporary

restraining order, limited expedited discovery, and the scheduling of briefing and a hearing on

Plaintiff’s motion for preliminary injunction. The Proxy recommending Proposal 2 has set the

Shareholder Vote for October 10, 2012. Given the irreparable harm that Plaintiff and the Class

will suffer if they are forced to make a decision on whether to approve Proposal 2 without the

benefit of having received all material information, Plaintiff intends to move for a preliminary

injunction enjoining the Shareholder Vote. As a result, Plaintiff requires limited expedited

2 A copy of the decision is attached as Exhibit B to the JEM Decl.



discovery so that he may have an opportunity to utilize the material obtained during discovery to

prepare and present a comprehensive motion for a preliminary injunction to the Court in a timely

and orderly manner. Plaintiff seeks a temporary restraining order to prevent Defendants from

holding the Shareholder Vote until his motion for preliminary injunction can be heard.

Accordingly, Plaintiff seeks an order (i) directing Defendants to produce to Plaintiff the

documents outlined in Section II(A) below on an expedited basis, (ii) directing Defendants to

make the member of the Board most knowledgeable about Proposal 2 available for a deposition

within three (3) calendar days of the date of the order; (iii) setting a hearing date and briefing

schedule on Plaintiff’s motion for a preliminary injunction, and (iv) directing Defendants to

refrain from holding the Shareholder Vote until after the hearing on Plaintiff’s motion for

preliminary injunction or Defendants disclose all material information sought by Plaintiff.

STATEMENT OF FACTS

AAR is a leading provider of diverse products and services to the worldwide commercial

aviation and government and defense industries. The Company operates in four business

segments: Aviation Supply Chain; Government and Defense Services; Maintenance, Repair and

Overhaul (MRO), and Structures and Systems.

On August 31, 2012, AAR filed with the Proxy3 with the SEC in connection with the

Shareholder Vote on three proposals. In Proposal 2 of the Proxy, the Board recommends that its

shareholders approve the Company’s executive compensation. However, Proposal 2 is not fully

and accurately described in the Proxy. In fact, the Proxy contains severe and material disclosure

violations regarding the reasons for, consideration and effects of Proposal 2 and why it is in the

best interest of shareholders. Among other things, while the Proxy discloses at page 41 that the

Board’s Compensation Committee retained Aon Hewitt as its independent compensation

3 A copy of the Proxy is attached as Exhibit C to the JEM Decl.



consultant, the Proxy does not provide a fair summary of Aon Hewitt’s analysis regarding

Proposal 2. Without this information, AAR’s shareholders cannot cast an informed vote on

whether to approve the Company’s executive compensation.

Moreover, the Proxy is deficient in its disclosure regarding Proposal 2, as follows:

a. The Proxy fails to disclose how the Board’s Compensation Committee

selected Aon Hewitt as its independent compensation consultant in

connection with determining the Company’s Fiscal 2012 executive

compensation and the amount of fees the Company paid to Aon Hewitt in

connection with its engagement as the Compensation Committee’s

independent compensation consultant for Fiscal 2012;

b. The Proxy fails to disclose the reason the Board’s Compensation

Committee determined in January 2012 to replace Aon Hewitt with

Mercer as its independent compensation consultant, and to retain Mercer

in connection with determining the Company’s Fiscal 2013 executive

compensation;

c. The Proxy fails to disclose regarding Terry D. Stinson, the Company’s

Group Vice President – Structures and Systems, the following: (i) why his

variable performance-based compensation is 17% of his total

compensation, while for all other named executive officers it is 42% of

their total compensation; (ii) why he participates in a separate performance

incentive program from that of the Company’s other named executive

officers such that his annual cash incentive award opportunity is not tied to

overall Company performance; and (iii) why his long-term stock incentive

compensation is only 38% of his total compensation, while for all other

named executive officers it is 55% of their total compensation;

d. The Proxy fails to disclose the identities of the 10 companies that were

removed from the Company’s Peer Group for Fiscal 2012, as well as the

reasons for their removal, and the reasons for including the 5 new

companies that were added to the Company’s Peer Group for Fiscal 2012;

e. The Proxy fails to disclose (i) the base salary, (ii) annual cash incentive,

(iii) long-term stock incentive, and (iv) total direct compensation data for

each of the companies in the Company’s Peer Group for Fiscal 2012, or

even the median, mean, and range for that data set;

f. The Proxy fails to disclose the reason the Board’s Compensation

Committee typically benchmarks target total direct compensation for the

Company's named executive officers in the 50th to 75th percentile of total

direct compensation levels of comparable positions at its Peer Group

companies;



g. The Proxy fails to disclose how the Board and/or the Board’s

Compensation Committee determined to reduce the Fiscal 2012 cash

incentive award to the Company’s named executive officers in an amount

equaling approximately 30% given that the Company’s stock price

declined by approximately 53.26% during Fiscal 2012; and

h. The Proxy fails to disclose how the Compensation Committee determined

to allocate the dollar value of the stock awards to the Company’s named

executive officers under the Company’s Fiscal 2012 Long-Term Incentive

Plan as follows: performance-based restricted stock — 40%; time-based

restricted stock — 30%; and stock options — 30%.

Plaintiff and the Class will suffer irreparable harm unless Defendants are enjoined from

continuing to breach their fiduciary duties by carrying out the Shareholder Vote on Proposal 2

without fully and accurately disclosing all information concerning the proposal.

ARGUMENT

I. A TEMPORARY RESTRAINING ORDER IS WARRANTED

Defendants are attempting to gain shareholder approval of AAR’s executive

compensation without adequately disclosing the Company’s compensation practices or a fair

summary of Aon Hewitt’s analyses. Pursuant to Federal Rule of Civil Procedure 65, this Court

may issue a temporary restraining order to enjoin the Shareholder Vote on Proposal 2. The

factors the Court must consider in deciding whether to grant a temporary injunction are:

(1) likelihood of success on the merits; (2) irreparable harm to the movant absent

an injunction; (3) possibility of substantial harm to other interested parties caused

by an injunction; and, (4) the public interest.

Am. Massage Therapy Ass'n v. Folkers, 308 F. Supp. 2d 899, 901 (N.D. Ill. 2004); Karhani v.

Meijer, 270 F. Supp. 2d 926, 929 (E.D. Mich. 2003); Club Gene & Georgetti Ltd. P'ship v. La

Luna Enters., 889 F. Supp. 324, 325 (N.D. Ill. 1995); A.J. Canfield Co. v. Vess Beverages, Inc.,

796 F.2d 903, 906 (7th Cir. 1986). A temporary restraining order is appropriate in the present



circumstances4 because the evidence clearly shows that (1) Defendants have failed to disclose

material information to AAR shareholders regarding Proposal 2 in breach of their fiduciary

duties; (2) AAR shareholders will be irreparably harmed on October 10, 2012, by being forced to

cast votes regarding Proposal 2 without being adequately informed as to the Company’s

executive compensation practices and a fair summary the analyses performed by the

Compensation Committee’s independent compensation consultant Aon Hewitt, unless the Court

enjoins the Shareholder Vote on Proposal 2 and/or requires Defendants to make adequate

disclosure regarding it; (3) postponing the Shareholder Vote on Proposal 2 until Defendants

adequately disclose all material information regarding AAR’s executive compensation and a fair

summary of Aon Hewitt’s analyses will not harm AAR’ business operations, and will prevent

AAR shareholders from casting uninformed votes to approve the Company’s executive

compensation; and (4) there is a strong public interest in preventing corporate fiduciaries from

submitting matters to a shareholder vote without adequately informing their shareholders

regarding those matters. Moreover, failing to temporarily enjoin the Shareholder Vote would

render the federally mandated “say-on-pay” vote pursuant to Dodd-Frank Wall Street Reform

and Consumer Protection Act a sham, as shareholders cannot provide the Board with meaningful

feedback regarding AAR’s executive compensation practices if they are prevented from casting

an informed vote.

4 Plaintiff also moves here for expedited discovery and, if granted, will be able to provide the Court with

a full record in support of his motion for a preliminary injunction.



A. Plaintiff Will Prove Breach of Fiduciary Duties, and Aiding and Abetting

Breach of Fiduciary Duties

1. Injunctive Relief That Preserves the Status Quo Requires a Reduced

Degree of Proof To Establish the Likelihood of Success on the Merits

The purpose of a temporary restraining order is merely to preserve the status quo until a

trial on the merits can be held. Chi. United Indus. v. City of Chicago, 445 F.3d 940

(7th Cir. 2006); Ellis v. Sheahan, 412 F.3d 754, 757 (7th Cir. 2005); Weintraub v. Hanrahan,

435 F.2d 461 (7th

Cir. 1970) (temporary restraining order contemplates limited type of injunctive

sanction of short duration, sometimes on ex parte issuance without notice, and it is to be granted

only until court has opportunity to pass upon merits of demand for preliminary injunction.);

Chevron Corp. v. Donziger, 768 F. Supp. 2d 581, 650 (S.D.N.Y. 2011) (citation and internal

quotations omitted). Because of this limited purpose, “a preliminary injunction is customarily

granted on the basis of procedures that are less formal and evidence that is less complete than in

a trial on the merits” and a party “is not required to prove his case in full at a preliminary

injunction hearing ....” Id. at 596 (citation and internal quotations omitted). See also Union

Carbide Agricultural Products Co. v. Costle, 632 F.2d 1014, 1017 (2d Cir. 1980) (holding that

the purpose of a preliminary injunction is to preserve the status quo). Plaintiff’s motion for a

temporary restraining order should be granted because the evidence clearly establishes that

Defendants have breached their fiduciary duties by attempting to submit Proposal 2 to the

Shareholder Vote without disclosing adequate information regarding the Company’s executive

compensation or a fair summary of Aon Hewitt’s analyses.

2. The Individual Defendants Breached Fiduciary Duties They Owe

Plaintiff and the Class

AAR is incorporated under Delaware law. By reason of the Individual Defendants’

positions with the Company as directors and under Delaware law, they are in a fiduciary



relationship with Plaintiff and the other stockholders of AAR who are being and will be harmed

by the defendants’ actions. AAR has scheduled the Shareholder Vote on Proposal 2 for October

10, 2012. However, Defendants have not provided AAR shareholders with the material

information required to enable them to make an informed decision on whether to approve the

Company’s executive compensation. In fact, the Board considered peer benchmarking analyses

performed by the Compensation Committee’s independent expert Aon Hewitt in recommending

Proposal 2 to shareholders. However, the Proxy fails to disclose a fair summary of Aon Hewitt’s

analyses in breach of the Individual Defendants’ fiduciary duty to the Company’s shareholders.

Under controlling Delaware law, AAR shareholders will be irreparably harmed if they are forced

to vote on this proposal without being provided with a fair summary of those analyses. See

Malone v. Brincat, 722 A.2d 5, 9 (Del. 1998) (Under Delaware law, a Board is under a fiduciary

duty to disclose material information when seeking shareholder action); In re Pure Res., Inc.

S’holders Litig., 808 A.2d 421, 452–53 (Del. Ch. 2002) (when a Board considers and relies on an

expert analysis in connection with a proposal submitted for shareholder approval, shareholders

are entitled to a fair summary of that analysis); Brocade, Case No. 1-12-CV-220249 (Santa Clara

Superior Court April 10, 2012) (enjoining shareholder vote to increase number of authorized

shares until all material information including equity grant projections disclosed); Martha

Stewart Living Omnimedia, Inc., Index No. 651249/2012 (expedited discovery granted prior to

shareholder vote on proposal to increase shares available for issuance under company’s stock

plan and case settled for curative Proxy disclosure prior to shareholder vote).

A temporary restraining order is necessary to prevent Defendants from making further

incomplete and misleading statements regarding Proposal 2 to AAR shareholders, and from

holding the Shareholder Vote without AAR shareholders first being adequately informed



regarding Proposal 2 or before Plaintiff’s motion for preliminary injunction can be heard.

3. AAR Aided and Abetted the Individual Defendants’ Breach of Their

Fiduciary Duties

As discussed in the section above, the Individual Defendants breached their fiduciary

duties to Plaintiff and the Class by submitting Proposal 2 for a Shareholder Vote without

disclosing adequate information regarding the Company’s executive compensation or a fair

summary of the Aon Hewitt analyses. AAR participated in this breach by causing the deficient

Proxy to be filed with the SEC. As a result of the Individual Defendants’ failure to disclose

adequate information about Proposal 2, absent Court intervention, Plaintiff and the Class will

cast uninformed votes regarding Proposal 2 to approve the Company’s executive compensation.

B. Plaintiff and All Other AAR Shareholders Will Suffer Irreparable Injury If

Forced To Cast Uninformed Votes Regarding Proposal 2

Defendants have scheduled the Shareholder Vote on Proposal 2 for October 10, 2012.

Absent a temporary restraining order prohibiting Defendants from completing the Shareholder

Vote on Proposal 2 until they adequately disclose information regarding the Company’s

executive compensation and a fair summary of the Aon Hewitt analyses to AAR shareholders,

any order that the Court eventually enters after the Shareholder Vote has already taken place

would be rendered ineffectual.

Further, irreparable harm is established when shareholders are asked to cast uninformed

votes. See ODS Techs., L.P. v. Marshall, 832 A.2d 1254, 1262 (Del. Ch. 2003); In re Pure, 808

A.2d at 452-53. In such circumstances, it is appropriate for a court to address material disclosure

problems through the issuance of a preliminary injunction that persists until the problems are

corrected to avoid having to “‘unscramble the eggs’” following the completion of an infirm



shareholder vote.5 Vindication of the recognized right to cast an informed vote “requires a

specific remedy such as an injunction, rather than a substitutionary remedy such as damages.”

Gilmartin v. Adobe Resources Corp., No. 12467, 1992 Del. Ch. LEXIS 80, at *43 (Del. Ch. Apr.

6, 1992); Joseph v. Shell Oil Co., 482 A.2d 335, 344 (Del. Ch. 1984). No other right would be

effective, as once Proposal 2 is approved, Defendants could report to the market the results of the

Shareholder Vote on executive compensation, but that information would be misleading to the

market as the Shareholder Vote would have been uninformed.

As the court in In re NetSmart Techs., Inc. S’holders Litig., stated:

[T]his court has typically found a threat of irreparable injury to exist when it

appears stockholders may make an important voting decision on inadequate

disclosures. By issuing an injunction requiring additional disclosure, the court

gives stockholders the choice to think for themselves on full information, thereby

vindicating their rights as stockholders to make important voting and remedial

decisions based on their own economic self-interest.

In re NetSmart Techs., Inc. S’holders Litig., 924 A.2d 171, 207(Del. Ch. 2007) (emphasis

added).

Defendants’ failure to disclose material information regarding Proposal 2 warrants the

issuance of a preliminary injunction to postpone holding the Shareholder Vote on Proposal 2.

5 See, e.g., McMillan v. Intercargo Corp., 768 A.2d 492, 500 (Del. Ch. 2000) (“the metaphorical merger

eggs have been scrambled”); Michigan Citizens for an Indep. Press v. Thornburgh, No. 88-2322, 1988

U.S. Dist. LEXIS 16576, at *18 (D.D.C. Aug. 17, 1988) (finding irreparable injury from merger because

consolidation would make it “very difficult to reassemble this egg once it has been scrambled”);

Phototron Corp. v. Eastman Kodak Co., 687 F. Supp. 1061, 1071 (N.D. Tex. 1988) (“physical assets sold,

and commercial arrangements permanently altered . . . [are] the sort of ‘scrambled eggs’ that cannot be

‘unscrambled’ through monetary damages”), rev’d on other grounds, 842 F.2d 95 (5th Cir. 1988);

Laidlaw Acquisition Corp. v. Mayflower Group, Inc., 636 F. Supp. 1513, 1517 (S.D. Ind. 1986) (“The

virtual impossibility of ‘unscrambling the scrambled eggs,’ once these parties are joined in corporate

(shotgun) matrimony ... constitutes ... irreparable harm ....”).



C. Preserving the Status Quo Would Not Prejudice Defendants and Would

Prevent Plaintiff and the Class from Casting Uninformed Votes to Approve

AAR’s Executive Compensation

Here, no hardship to Defendants will occur as a result of the requested temporary

restraining order. See In re Staples, Inc., S’holders Litig., 792 A.2d 934, 960 (Del. Ch. 2001) (it

is appropriate for the court to address material disclosure problems through the issuance of a

preliminary injunction that persists until the problems are corrected. An injunctive remedy of

that nature specifically vindicates the stockholder right at issue – the right to receive fair

disclosure of the material facts necessary to cast a fully informed vote – in a manner that later

monetary damages cannot and is therefore the preferred remedy, where practicable”); see also

State of Wis. Inv. Bd. v. Bartlett, No. 17727, 2000 Del. Ch. LEXIS 22, at *8 (Del. Ch. Feb. 9,

2000) (noting that hardships suffered by defendant by delay of vote were de minimis when

compared to the possibility that the shareholders voted on the extinction of their corporation with

less than all the material reasonably available to them); In re Anderson, Clayton S’holders’

Litig., 519 A.2d 669, 676 (Del. Ch. 1986) (recognizing, in balancing harm, that “delay in any

large transaction may involve risks of employee agitation or market fluctuations,” but finding

those factors not “especially significant” in view of the “fundamental importance” of the

transaction “and its likely long-term consequences”); Burmax, Co. v. B&S Indus., Inc., 135

A.D.2d 599, 601 (2d Dep’t 1987) (balance of equities favored enjoining defendants, because

injunctive relief of maintaining status quo was of “limited breadth” and would prevent

irreparable harm to plaintiff).

Indeed, postponement of the Shareholder Vote is beneficial to Defendants, as it gives

them time to correct their breaches of fiduciary duty and avoid the years of litigation that would

likely arise if they were to obtain shareholder approval for the Company’s executive

compensation without providing shareholders all material information necessary to cast an



informed vote, and reported those misleading results to the market. See NetSmart, 924 A.2d at

207-08 (“By this approach, the court also ensures that greater effect can be given to the resulting

vote down the line, reducing future litigation costs and transactional and liability uncertainty.”).

Defendants themselves cannot claim that they will be harmed by a delay of limited

duration. A short delay, caused by Defendants’ own failure to take appropriate action, to enable

Plaintiff and other AAR shareholders to make an informed decision can hardly be construed to

cause Defendants harm.

D. There is a Public Interest In Preventing Corporate Fiduciaries From

Submitting Matters to a Shareholder Vote Without Providing Adequate

Disclosure

As discussed above, shareholders can be irreparably harmed if forced to vote on

corporate matters without being adequately informed. Indeed, corporate boards owe fiduciary

duties to shareholders precisely because they have far more information and control over

corporate matters than shareholders, and can carry out actions that harm shareholders without

their knowledge. Restraining defendants from securing approval of the Company’s executive

compensation without adequately disclosing serves the important public interest of protecting

shareholder rights and holding corporate fiduciaries accountable.

II. EXPEDITED DISCOVERY IS NECESSARY AND APPROPRIATE

In order to present the Court with a more complete factual record on some of the issues

upon which to consider the merits of the motion for a preliminary injunction that Plaintiff intends

to file, discovery is needed to adduce material information concerning Defendants’ consideration

of Proposal 2, their decision to submit Proposal 2 to a vote at the Shareholder Vote, and their

issuance of the Proxy.



A. Good Cause Exists For Expedited Discovery

Plaintiff has good cause to warrant expedited discovery before a conference takes place

pursuant to Fed. R Civ. P. 26(f). The moratorium on discovery prior to the parties’ Rule 26(f)

conference may be lifted by court order. See Fed. R. Civ. P. 26(d). Expedited discovery may be

granted where the movant demonstrates good cause. Sheridan v. Oak Street Mortg., LLC, 244

F.R.D. 520, 521-22 (E.D. Wis. 2007) (granting motion for expedited discovery in putative class

action). Here, there is good cause to conduct discovery on an expedited basis because Plaintiff

seeks to preliminarily enjoin the Shareholder Vote scheduled for October 10, 2012. Expedited

discovery is, therefore, appropriate because: (a) discovery in the usual course will prevent an

open evaluation of Proposal 2 and allow the Shareholder Vote on it to proceed unchecked; (b)

the discovery requested is of vital importance to the injunctive relief Plaintiff seeks; (c) denying

Plaintiff’s motion would amount to the denial of any meaningful discovery which will

irreparably harm Plaintiff and the Class; and (d) Defendants will not suffer any prejudice by

granting the requested relief.

Indeed, Federal Courts routinely grant expedited discovery in cases involving corporate

shareholder votes. See e.g., Grimes v. Vitalink Commc’ns Corp., 17 F.3d 1553, 1555 (3d Cir.

1994) (expedited discovery permitted in suit concerning allegations that defendants breached

their fiduciary duties in approving a merger); F.T.C. v. Univ. Health, Inc., 938 F.2d 1206, 1210

(11th Cir. 1991) (expedited discovery allowed where Federal Trade Commission sought

injunction to prevent defendants from consummating an asset acquisition); Ronson Corp. v.

Liquifin Aktiengesellschaft, 483 F.2d 846, 848 (3d Cir. 1973) (district court directed expedited

discovery where defendants made misrepresentations and omissions in connection with a

Merger). In the Delaware Court of Chancery, which regularly deals with issues involving

corporate actions such as this one, “[a] party’s request to schedule an application for a



preliminary injunction, and to expedite the discovery related thereto, is normally routinely

granted. Exceptions to that norm are rare.” See In re Int’l, Inc. Jensen S’holders Litig., No.

14992, 1996 Del. Ch. LEXIS 77, at *1-2 (Del. Ch. July 16, 1996); Next Level Commc’ns, Inc. v.

Motorola, Inc., 834 A.2d 828 (Del. Ch. 2003); In re Aquila, Inc. S’holders Litig., 805 A.2d 184

(Del. Ch. 2002); In re Pure, 808 A.2d 421; In re Siliconix Inc., S’holders Litig., No. 18700, 2001

Del. Ch. LEXIS 83 (Del. Ch. June 19, 2001).

Indeed, courts routinely permit expedited discovery in situations involving injunctive

relief and corporate actions. See, e.g., Am. Stores Co. v. Lucky Stores, Inc., No. 9766, 1988 WL

909330, at *2 (Del. Ch. Apr. 13, 1988) (“granting of [expedited discovery] is quite conventional

in litigation of this type”); see also Moravek v. FNB Bancorp, Inc., No. 86 C 4571, 1986 U.S.

Dist. LEXIS 23188, at *10-12 (N.D. Ill. July 3, 1986) (determining that plaintiff must be allowed

discovery prior to their preliminary injunction hearing and, given the short period of time during

which the current tender offer will be open, such discovery needs to be expedited).6

Defendants have scheduled the Shareholder Vote on Proposal 2 for October 10, 2012.

Absent expedited discovery, Plaintiff and the putative members of the Class will be forced to

cast votes to approve Aon’s executive compensation without having adequate knowledge of the

Company’s compensation practices. Thus, absent expedited discovery, the Company's

shareholders are faced with irreparable injury. See QVC Network v. Paramount Commc’ns, Inc.,

635 A.2d 1245, 1273 n.50 (Del. Ch. 1993) (“[s]ince the opportunity for shareholders to receive a

superior control premium would be irrevocably lost if injunctive relief were not granted, that

6 See City P’ship Co. v. Atl. Acquisition Ltd. P’ship, 100 F.3d 1041, 1043 (1

st Cir. 1996) (allowing expedited

discovery based on the limited duration of the tender offer); Horizon Corp. v. Anselmi, 483 F. Supp. 653, 655

(D.D.C. 1980) (expedited discovery used where preliminary injunction was sought to enjoin defendants from

soliciting proxies from stockholders); Evmar Oil Corp. v. Getty Oil Co., No. 76-4039-MML, 1978 WL 1067, at *1

(C.D. Cal. Mar. 17, 1978) (in anticipation of the hearing upon plaintiffs’ motion for a preliminary injunction

restraining a merger, expedited discovery, including the taking of more than 20 depositions, was conducted by the

parties); Grimes, 17 F.3d at 1555 (expedited discovery used in a suit concerning allegations that the defendants

breached their fiduciary duties in approving a merger).



alone would be sufficient to constitute irreparable harm”), aff’d, 637 A.2d 34 (Del. 1993).

Without expedited discovery, Plaintiff will be virtually powerless to prevent imminent and

irreparable harm from being inflicting upon the Company's public shareholders.

The benefit in allowing AAR public shareholders a meaningful opportunity to protect

their shareholder rights far outweighs the minimal burden placed on Defendants in producing

documents and making themselves available for depositions on an expedited basis. Plaintiff

seeks limited discovery that will allow him to pursue injunctive relief on a more complete record.

Accordingly, Plaintiff requests that this Court order Defendants to expedite the

production of the following:

1. AAR’s Board and/or Compensation Committee meeting minutes with attachments

and materials reviewed at the meetings, insofar as the materials relate to the

Shareholder Vote on Proposal 2 and the Proxy;

2. All materials given to or received by the Board and/or Compensation Committee

from Aon Hewitt regarding Proposal 2 in the Proxy, including any advisory

opinions, analyses or projections;

3. All communications, including emails from AAR’s directors or officers that relate

to the Shareholder Vote and the Proxy, including but not limited to

communications concerning Proposal 2; and

4. All communications between AAR and the SEC regarding the Shareholder Vote

and/or Proxy.

In addition to document discovery, Plaintiff seeks only one deposition of the member of

the Board most knowledgeable about Proposal 2. This would include a member of any

subcommittee the Board created to evaluate the risks and benefits of issuing the additional shares

under Proposal 2. Plaintiff seeks to depose this witness in order to obtain the information

necessary to evaluate Proposal 2, to evaluate the independence of Defendants and others, and to

show that the disclosure in the Proxy is materially inadequate.

In light of (1) Plaintiff’s very limited request for discovery, (2) the fact that the discovery



is necessary to assist Plaintiff in safeguarding the rights of AAR shareholders, and (3) the time

limitations created by the October 10, 2012 deadline for the Shareholder Vote, the need for

discovery in this case clearly outweighs any hardship to Defendants or third parties.

CONCLUSION

For the foregoing reasons, as well as those set forth in the accompanying documents,

Plaintiff’s emergency motion for a temporary restraining order, expedited discovery, and the

scheduling of briefing and a hearing on Plaintiff’s motion for preliminary injunction should be

granted.

Dated: October 5, 2012

ROETZEL & ANDRESS, LPA

By: Harry O. Channon _______________

Mark D. Belongia (ARDC No. 6269391)

Harry O. Channon (ARDC No. 6282644)

20 S. Clark Street, Suite 300

Chicago, Illinois 60603

Tel: 312-662-1030

Fax: 312-662-1040

FARUQI & FARUQI, LLP Juan E. Monteverde

369 Lexington Avenue, 10th

Floor

New York, New York 10017

Tel: 212-983-9330

Fax: 212-983-9331

Email: [email protected]

Counsel for Plaintiff


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