721 A.2d 1281
PROCEDURAL POSTURE: Appellant corporation challenged a ruling by the Court of Chancery, New Castle County (Delaware), favoring appellee hostile bidder, and which declared appellant's amended rights plan invalid, which plan included a delayed redemptive provision. Appellant contended that the provision was proper.
OVERVIEW: Appellee hostile bidder sought a declaratory judgment that appellant corporation's adopted takeover defenses were invalid, and sought an injunction requiring appellant's board to dismantle those defenses. In response to a take-over bid initiated by appellee, appellant board had voted to amend its by-laws pertaining to the requirements and time for holding any special meeting requested by shareholders. The board also amended appellant's shareholder plan and replaced it with a deferred redemption provision. The lower court found that the amended by-law was valid, but that the deferred redemption provision was invalid. Appellant challenged the ruling.
The court affirmed, holding that the delayed redemption provision was invalid under 8 Del. Laws § 141(a), because it prevented a newly elected board of directors from completely discharging its fundamental management duties to the corporation and its stockholders for six months.
The provision improperly and illegally restricted the board's exercise of fiduciary duties on matters of management policy, including the ability to negotiate a possible sale of the corporation, which was a matter of fundamental importance to shareholders.
OUTCOME: The court affirmed the lower court's ruling in favor of appellee hostile bidder, that the deferred redemption provision enacted by appellant corporation was invalid. The court found that the provision restricted appellant board's exercise of its fiduciary duties and curbed its statutory right to manage and direct the affairs of the business.
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