DealLawyers.com Blog

If you’ve been paying attention to the debate over the 2024 Delaware DGCL amendments, one thing that seems pretty clear is that a lot of stuff we all thought was settled long ago is once again up for grabs. Take “dead hand” poison pills, for example.  These pills contained provisions that only permitted them to be redeemed by “continuing directors” and the Chancery Court invalidated them in Carmody v. Toll Bros., 723 A.2d 1180 (Del. Ch. 1998), on the basis that the adoption of such a provision involved both a violation of Section 141 of the DGCL and a breach of the directors’ fiduciary duties.  In a recent M&A Law Prof Blog post, Prof. Brian Quinn says that the Delaware Legislature may have resurrected the dead hand pill:

In Toll Brothers, VC Jacobs – on a motion to dismiss – held that since the Rights that were the fulcrum for the dead hand pill could not be redeemed pursuant to the terms of the Rights Agreement by any board other than the directors who had initially adopted the pill (or at least by the directors who were continuing from the original board following a successful proxy contest) that the Rights Agreement ran afoul of § 141(a) and (d) was therefore invalid.

OK, so fast forward to 2024. Now that § 122(18) has passed and § 141(a) no longer sits atop the statutory hill, one can imagine writing an amendment to the Shareholder Rights Agreement that designates a shareholder or shareholders (who happen to be current directors) as responsible for pulling the pill. The board covenants not to redeem the pill under the Rights Agreement unless the director/shareholder agrees. So, even if the director (or directors) are replaced in a proxy contest, their dead hands will still float around the boardroom preventing the new board from pulling the pill in a manner that the new board believes is consistent with its fiduciary duties.

I don’t know that this issue is quite as cut and dried as this blog suggests.  As noted above, Vice Chancellor Jacobs also held that in adopting the dead hand provisions, the directors breached their fiduciary duties, and fiduciary duty claims are something that the advocates of the amendments contend are unaffected by them. Still, if you’re defending a dead hand provision, you’d rather try to argue your way through Unocal than confront a statutory brick wall.

– John Jenkins