500 A.2d 1346
PROCEDURAL POSTURE: Appellant dissenting director sought review of a ruling of the Court of Chancery (Delaware) that appellee corporation's preferred share purchase rights plan, a tool to defend against corporate takeover, was a legitimate exercise of appellee directors' business judgment.
-The Board of Directors of Appellees adopted the Preferred Share Purchase Rights Plan as a preventative measure against future takeover attempts.
-Subsequently, Appellants brought suit.
-The Plan provides that Appellee’s common stockholders are entitled to the issuance of one Right per common share under two triggering conditions.
-The triggers are, first, a tender offer for 30% of the shares and second, the acquisition of 20% of the shares by any single entity or group.
-Once triggered, the Right authorizes the holder to purchase $200 of common stock of the offeror or purchaser for $100 thereby causing massive dilution of the value of the aggressor’s shares.
-Prior to the triggering event, the right is automatically fixed to the shares and can’t be traded separately form the shares.
-The directors voted to institute a preferred share purchase rights plan designed to defend the corporation from any hostile takeover. The dissenting director brought suit. The lower court ruled in favor of appellees. On appeal, the court affirmed.
-Sufficient authority for the plan existed in Del. Code Ann. tit. 8, § 157.
-The plan did not prevent stockholders from receiving tender offers, and the change to the corporation's structure was less than that resulting from the implementation of other permissible defensive mechanisms.
-The plan's effect on proxy contests would be minimal. The directors were informed about the plan and adopted it in the good faith belief that it was necessary to protect the corporation.
-The plan was reasonable in relation to the threat posed. Therefore, the directors were entitled to receive the benefit of the business judgment rule.
OUTCOME: The court affirmed the lower court's ruling, finding that the adoption of the plan was within the directors' authority and was a reasonable defensive mechanism adopted in the good faith belief that it was necessary to protect the corporation from coercive acquisition techniques.
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