(a) irreparable harm and (b) either (1) likelihood of success on the merits or (2) sufficiently serious questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping decidedly toward the party requesting the preliminary relief. See Norlin Corp. v. Rooney, Pace Inc., 744 F.2d 255, 260 (2d Cir.1984); Jack Kahn Music Co., Inc. v. Baldwin Piano & Organ Co., 604 F.2d 755, 758 (2d Cir.1979).
We note at the outset that the district court properly recognized that a preliminary injunction is an extraordinary measure, particularly in a takeover context. As we noted in Hanson I:
... the preliminary injunction, which is one of the most drastic tools in the arsenal of judicial remedies, Medical Soc. of State of N.Y. v. Toia, 560 F.2d 535, 537 (2d Cir.1977) (“an extraordinary and drastic remedy which should not be routinely granted”), must be used with great care, lest the forces of the free market, which in the end should determine the merits of takeover disputes, [be] nullified.
Hanson I, 774 F.2d at 60.
Our standard of review is whether 1 the district court abused its discretion in denying the preliminary injunction, Coca-Cola v. Tropicana Products, Inc., 690 F.2d 312, 315 (2d Cir.1982) (remanding for issuance of preliminary injunction), i.e., whether it “relie[d] on clearly erroneous findings of fact or on an error of law in [not] issuing the injunction,” Hanson I, 774 F.2d at 54.
SCM is a New York corporation^ and no party disputes that the acts of its directors are to be considered in light of New York law. Under New York corporation law, a director’s obligation to a corporation and its shareholders includes a duty of care in the execution of directorial responsibilities. Under the duty of care, a director, as a corporate fiduciary, in the discharge of his responsibilities must use' at least that degree of diligence that an “ordinarily prudent” person under similar circumstances would use. See N.Y.Bus. Corp.L. § 717. In evaluating this duty, New York courts adhere to the business judgment rule, which “bars judicial inquiry into actions of corporate directors taken in good faith and in the exercise of honest judgment in the lawful and legitimate furtherance of corporate purposes.” Auerbach v. Bennett, 47 N.Y.2d 619, 629, 419 N.Y.S.2d 920, 926, 393 N.E.2d 994, 1000 (1979); see also Pollitz v. Wabash R.R. Co., 207 N.Y. 113, 124, 100 N.E. 721, 724 (1912).
Thus, in duty of care analysis, a presumption of propriety inures to the benefit of directors; absent a prima facie showing to the contrary, directors enjoy “wide latitude in devising strategies to resist unfriendly [takeover] advances” under the business judgment rule.
See Norlin, 744 F.2d at 264-65 (citing
Treadway v. Care Corp., 638 F.2d 357, 380-84 (2d Cir.1980);
Crouse-Hinds Co. v. Internorth, Inc., 634 F.2d 690, 701-04 (2d Cir.1980)). However, even if a board concludes that a takeover attempt is not in the best interests of the company, it does not hold a blank check to use all possible strategies to forestall the acquisition moves.
Norlin, 744 F.2d at 265-66.
Although in other jurisdictions, directors may not enjoy the same presumptions per the business judgment rule, at least in a takeover context,
see, e.g., Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946, 954-55 (Del.Sup.1985) (initial burden on directors in takeover context to show reasonable grounds for believing that takeover would endanger corporate policy; satisfied by directors’ showing good faith and reasonable investigation), under New York law, the initial burden of proving directors’ breach of fiduciary duty rests with the plaintiff.
See Crouse-Hinds, 634 F.2d at 702;
see also Auerbach, 419 N.Y.S.2d at 926-27, 393 N.E.2d at 1000-01.
In the present case, the challenged acts of the directors concern the grant of the lock-up option. This takeover defensive tactic is not per se illegal. See, e.g., Buffalo Forge Co. v. Ogden Corp.,