Opinion ID: 1508700
Heading Depth: 1
Heading Rank: 10

Heading: quickturn by-law amendment

Text: At the time Mentor commenced its tender offer and proxy contest, Quickturn's by-laws authorized shareholders holding at least 10% of Quickturn's voting stock to call a special meeting of stockholders. The then-applicable by-law, Article II, § 2.3, read thusly: A special meeting of the stockholders may be called at any time by (i) the board of directors, (ii) the chairman of the board, (iii) the president, (iv) the chief executive officer or (v) one or more shareholders holding shares in the aggregate entitled to cast not less than ten percent (10%) of the votes at that meeting. At the August 21, 1998 board meeting, the Quickturn board amended § 2.3 in response to the Mentor bid, to read as follows: A special meeting of the stockholders may be called at any time by (i) the board of directors, (ii) the chairman of the board, (iii) the president, (iv) the chief executive officer or (v) subject to the procedures set forth in this Section 2.3, one or more stockholders holding shares in the aggregate entitled to cast not less than ten percent (10%) of the votes at that meeting. Upon request in writing sent by registered mail to the president or chief executive officer by any stockholder or stockholders entitled to call a special meeting of stockholders pursuant to this Section 2.3, the board of directors shall determine a place and time for such meeting, which time shall be not less than ninety (90) nor more than one hundred (100) days after the receipt and determination of the validity of such request, and a record date for the determination of stockholders entitled to vote at such meeting in the manner set forth in Section 2.12 hereof. Following such receipt and determination, it shall be the duty of the secretary to cause notice to be given to the stockholders entitled to vote at such meeting, in the manner set forth in Section 2.4 hereof, that a meeting will be held at the time and place so determined. The Court of Chancery found that the Quickturn board amended the By-Law because (i) the original § 2.3 was incomplete: it did not explicitly state who would be responsible for determining the time, place, and record date for the meeting and (ii) the original by-law language arguably would have allowed a hostile bidder holding the requisite percentage of shares to call a special stockholders meeting on minimal notice and stampede the shareholders into making a decision without time to become adequately informed. The Court of Chancery concluded that the By-Law Amendment responded to those concerns by explicitly making the Quickturn board responsible for fixing the time, place, record date and notice of the special meeting and by mandating a 90 to 100 day period of delay for holding the meeting after the validity of the shareholder's meeting request is determined. That specific delay period was chosen to make § 2.3 parallel to, and congruent with, Quickturn's advance notice bylaw, which contained a similar 90 to 100 day minimum advance notice period. The only By-Law Amendment-related issue that the Court of Chancery decided was whether the Amendment, standing alone, fell outside any range of potentially reasonable responses and, therefore, constituted a disproportionate response to the threat posed by the Mentor tender offer and proxy contest. Among the factors the Court of Chancery considered were whether the challenged defensive response is a statutorily authorized form of business decision that a board of directors may routinely make in a non-takeover context, [18] and whether the response was limited and corresponded in degree or magnitude to the degree or magnitude of the threat. [19] The Court of Chancery concluded that the Quickturn board's adoption of the By-Law Amendment did not violate the fiduciary principles embodied in Unocal and its progeny. [20] Although the Delayed Redemption Provision and the By-Law Amendment were enacted as a concerted defensive response to Mentor's hostile takeover efforts, Mentor did not file a cross-appeal challenging the Court of Chancery's decision upholding the validity of Quickturn's amendment to its by-laws. Consequently, the Court of Chancery's ruling on the By-Law Amendment is not at issue in this appeal and has become final.