No, the board can't do that. The court said the six-month block was illegal. Under the law, the board of directors must have full power to run the company. The old board can't create a rule that handcuffs a new board that shareholders fairly elected. A new board needs to be able to make decisions for the good of the shareholders from day one, and this rule improperly took that power away.

The rule that stops a new board from getting rid of the 'poison pill' for six months is not allowed under Delaware law. It prevents the new board from fully doing its job of running the company, which includes considering selling the company. Even though the rule only limits one part of the board's power, it's an important part for the company's owners, the shareholders. So this rule goes against the law that says the board has full power to manage the company's business.

One of the most basic tenets of Delaware corporate law is that the board of directors has the ultimate responsibility for managing the business and affairs of a corporation

—noting that a corporate board of directors has "statutory authority to manage the corporation under 8 Del. C. § 141 (a) and [a] concomitant fiduciary duty pursuant to that statutory mandate

—the Court invalidated a “no hand” poison pill on grounds that it interfered with the statutorilyprotected power of a newly elected board to manage the business and affairs of the corporation.

"The General Corporation Law of the State of Delaware... and the decisions of [the Delaware Supreme] Court have repeatedly recognized the fundamental principle that the management of the business and affairs of a Delaware corporation is entrusted to its directors, who are the duly elected and authorized representatives of the stockholders

—holding that a delayed redemption provision barring a newly elected board from redeeming the Rights Plan for six months if the purpose is to facilitate a transaction with an “interested person

—poison pill that could not be redeemed by new board of directors was invalid because it improperly divested the board of their statutory authority and duty to manage the affairs of the corporation

As important, the past generation has demonstrated, time and again, the willingness of the Delaware Supreme Court to uphold strong medicine against violations of the duty of loyalty

—the Delaware Supreme Court considered a "delayed redemption provision," or poison pill, that the Quickturn board added to its shareholder rights plan in response to a hostile tender offer from Mentor.

—decision undercuts the validity or usefulness of traditional rights plans or the readoption of rights plans in anticipation of the expiration of a company's rights plan.

Yes, a 'no hand' poison pill provision that prevents a newly elected board from redeeming a rights plan for six months is invalid because it impermissibly restricts the board's authority under Delaware General Corporation Law § 141(a). The court reasoned that § 141(a) grants the board of directors the ultimate responsibility for managing the business and affairs of the corporation, and this authority cannot be limited or delegated except through a provision in the certificate of incorporation. The Delayed Redemption Provision (DRP) would prevent a newly elected board from completely discharging its fundamental management duties, particularly in the critical area of negotiating a sale of the corporation. Furthermore, the DRP would force a new board to breach its unremitting fiduciary duties by preventing it from acting in the best interests of the shareholders, even if its duty required it to redeem the rights plan to accept a favorable offer. No defensive measure can be sustained if it requires a future board to breach its fiduciary duties.

The Delayed Redemption Provision is invalid under Delaware law because it prevents a newly elected board of directors from completely discharging its statutory duties under 8 Del. C. § 141(a) to manage the business and affairs of the corporation for six months, including the power to negotiate a possible sale of the corporation. While the provision limits the board's authority in only one respect, the suspension of the rights plan, this restriction on the board's power to facilitate a transaction is in an area of fundamental importance to the shareholders. Therefore, the provision impermissibly circumscribes the board's statutory authority and the directors' ability to fulfill their concomitant fiduciary duties.

Quickturn Design Systems, Inc. v. Shapiro

Case Podcast

Rule of Law:

The Legal Principle

Facts:

Procedural Posture:

How It Got Here

Issue:

Legal Question at Stake

Opinions:

Majority, Concurrences & Dissents

Analysis:

Why This Case Matters

Gunnerbot