Carmody v. Toll Brothers, Inc.

723 A.2d 1180 (1998)

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Nature of the Case

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Facts

Toll Brothers (D) was a corporation that designed, built, and marketed single-family homes in the U.S. D's board of directors consisted of nine members, four executives of the company and five outside the company. Bruce and Robert Toll owned approximately 37.5% of the common stock of D. The company went public on the NYSE and by 1997 had almost 35 million outstanding shares traded. A rights plan was adopted in June 12, 1997. D's stock was trading at the low end of a $17-25 range. The board was worried that D was a target for acquisition. There was no specific takeover attempt underway when the plan was adopted. This plan used a dividend distribution of one preferred stock purchase right for each outstanding share of stock as of July 11, 1997. The Right would entitle the holder to purchase one-thousandth of a share of newly registered series of Junior A Preferred Stock for $100. The Rights would become exercisable when a 15% trigger point was reached by any potential takeover party. The Rights, once exercisable, remained so until their final expiration date on June 12, 2007, unless earlier redeemed by D. Once the trigger is hit, the Right holder becomes entitled to buy two shares of D common stock or other securities at half price. This is known as a flip in feature. The right also had a flip over feature that if D did not survive, the Rightsholder also became entitled to purchase stock in the acquiring company at half price. The Dead Hand feature of the plan operated to prevent any directors of D except those in office as of the date of the Rights plan from redeeming the Rights until they expire on June 12, 2007. P sued to remove the plan, but D's moved to dismiss the complaint on ground that relief could not be granted.