Mentor Graphics Corp. v. Quickturn Design Systems, Inc.

OPINION

In the ever-evolving field of corporate takeover jurisprudence, the defensive mechanism that has mutated more rapidly than others, and has prompted the most widespread debate, is the “poison pill” rights plan. Since making its legal debut in 1985, 1 the story of the poison pill has been a work-in-progress, with each variation and innovation generating new litigation and occasions for judicial opinion writing. This case involves the pill’s most recent incarnation — a “no hand” poison pill of limited duration and scope. 2 It marks the latest (but by no means the last) chapter of that work-in-progress.

*28 To put this case into context, in Carmody v. Toll Brothers., Inc. (“Toll Brothers ”), 3 this Court, in denying a Rule 12(b)(6) motion to dismiss a complaint attacking a so-called “dead hand” poison pill, 4 ruled that that form of rights plan was subject to legal challenge under the Delaware General Corporation Law (“DGCL”) and Delaware corporate fiduciary principles. The Toll Brothers dead hand poison pill plan provided that if there were a change of control of the board of directors, then for the entire lifetime of the pill only the “continuing directors” 5 would be empowered to redeem the rights to facilitate an acquisition by a hostile bidder.

The “no hand” poison pill being challenged here is a variation of, and operates in a different manner from, the “dead hand” pill addressed in Toll Brothers. The pill in Toll Brothers created two classes of directors. One would have the power to redeem and the other would not. That limitation would last the entire lifetime of the pill. In contrast, the “no hand” pill in this ease would create no classes. It would evenhandedly prevent all members of a newly elected target board, whose majority is nominated or supported by the hostile bidder, from redeeming the rights to facilitate an acquisition by the bidder. The duration of this “no hand” pill would be for six months after the new directors take office. Those nuanced distinctions and their legal effect, none of which were addressed in Toll Brothers, are what this lawsuit is about.

The dispute that underlies these actions for declarative and injunctive relief arises out of an ongoing effort by Mentor Graphics Corporation (“Mentor”), a hostile bidder, to acquire Quiekturn Design Systems, Inc. (“Quickturn”), the target company. The plaintiffs are Mentor 6 and an unaffiliated stockholder of Quiekturn; the named defendants are Quickturn and its directors. The plaintiffs challenge the validity, on Delaware fiduciary and statutory grounds, of a “no hand” rights plan of limited duration (the “Delayed Redemption Provision” or “DRP”) that the target company board adopted in response to the hostile bidder’s tender offer and proxy contest to replace that board as part of the bidder’s larger effort to acquire the target company. In response to that hostile bid, the board also amended the company’s by-laws to delay the holding of any special stockholders meeting requested by stockholders, for 90 to 100 days after the validity of the request is determined (the “Amendment” or “By-Law Amendment”). The plaintiffs also challenge the legality of that By-Law Amendment.

This is the Opinion of the Court, after trial on the merits. For the reasons discussed below, the Court determines that the DRP is invalid on fiduciary duty grounds, and that the By-Law Amendment is valid and will be upheld.

I. STATEMENT OF FACTS

A. The Parties

Mentor (the hostile bidder-plaintiff) is an Oregon corporation, headquartered in Wil-sonville, Oregon, whose shares are publicly traded on the NASDAQ national market system. Mentor manufactures, markets, and supports electronic design automation (“EDA”) software and hardware, and also provides related services, that enable engineers to design, analyze, simulate, model, *29 implement, and verify the components of electronic systems. Mentor markets its products primarily for large firms in the communications, computer, semiconductor, consumer electronics, aerospace, and transportation industries.

Quickturn (the target company-defendant) is a Delaware corporation, headquartered in San Jose, California. Quickturn has 17,922,-518 outstanding shares of common stock 7 that are publicly traded on the NASDAQ national market system. Quickturn invented, and was the first company to successfully market, logic emulation technology, which is used to verify the design of complex silicon chips and electronics systems. Quickturn is currently the market leader in the emulation business, controlling an estimated 60% of the worldwide emulation market and an even higher percentage of the United States market. Quickturn maintains the largest intellectual property portfolio in the industry, which includes approximately twenty-nine logic emulation patents issued in the United States, and numerous other patents issued in foreign jurisdictions. Quiekturn’s customers include the world’s leading technology companies, among them Intel, IBM, Sun Micro-systems, Texas Instruments, Hitachi, Fujitsu, Siemens, and NEC.

Quickturn’s board of directors consists of eight members, all but one of whom are outside, independent directors. All have distinguished careers and significant technological experience. 8 Collectively, the board has more than 30 years of experience in the EDA industry and owns one million shares (about 5%) of Quiekturn’s common stock.

Since 1989, Quickturn has historically been a growth company, having experienced increases in earnings and revenues during the past seven years. 9 Those favorable trends' were reflected in Quicktum’s stock prices, which reached a high of $15.75 during the first quarter of 1998, and generally traded in the $15.875 to $21.25 range during the year preceding Mentor’s hostile bid which commenced in August 1998. 10

Since the Spring of 1998, Quickturn’s earnings, revenue growth, and stock price levels have declined, largely because of the downturn in the semiconductor industry and more specifically in the Asian semiconductor market. Historically, 30%-35% of Quickturn’s annual sales (approximately $35 million) had come from Asia, 11 but in 1998, Quickturn’s Asian sales declined dramatically with the downturn of the Asian market. 12 Manage *30 ment has projected that the negative impact of the Asian market upon Quiektum’s sales should begin reversing itself sometime between the second half of 1998 and early 1999.

B. The Quickturn-Mentor Patent Litigation

To understand the economics and the motivation of Mentor’s hostile bid for Quickturn, one must appreciate the earlier relationship — including, importantly, the history of patent litigation — between Mentor and Quickturn. Since 1996 those two firms have been engaged in patent litigation that has resulted in Mentor being barred from competing in the United States emulation market. Because its products have been adjudicated to infringe upon Quickturn’s patents, Mentor currently stands enjoined from selling, manufacturing, or marketing its emulation product in the United States — an unquestionably significant market for emulation products.

The origin of the patent controversy was Mentor’s sale of its hardware emulation assets, including its patents, to Quickturn in 1992. Later, Mentor re-entered the emulation business when it acquired a French company called Meta Systems (“Meta”), and began to market Meta’s products in the United States in December 1995. Quickturn reacted by commencing a proceeding before the International Trade Commission (“ITC”) claiming that Meta and Mentor were infringing Quiekturn’s patents. 13 In August 1996, the ITC issued an order prohibiting Mentor fi-om importing, selling, distributing, advertising, or soliciting in the United States, any products manufactured by Meta. That preliminary order was affirmed by the Federal Circuit Court of Appeals in August 1997. 14 In December 1997, the ITC issued a Permanent Exclusion Order prohibiting Mentor from importing, selling, marketing, advertising, or soliciting in the United States, until at least April 28, 2009, any of the emulation products manufactured by Meta outside the United States. 15

In an effort to circumvent the effects of the ITC orders, Mentor began manufacturing its emulation products in the United States in 1997. Mentor also filed a declaratory judgment action in Oregon, claiming that its products did not infringe upon Quick-turn’s patents. Thereafter, the United States District Court in Oregon issued an injunction prohibiting Mentor from selling, marketing, or manufacturing its emulation products in the United States. That injunction was affirmed by the Federal Circuit Court of Appeals, 16 which on September 28, 1998, denied Mentor’s final appeal of the District Court’s preliminary injunction. 17

At present, the only remaining patent litigation is pending in the Oregon Federal District Court, where Quickturn is asserting a patent infringement damage claim that, *31 Quiekturn contends, is worth approximately $225 million. 18 Mentor contends that Quick-turn’s claim is worth only $5.2 million or even less.

C. Mentor’s Interest in Acquiring Quick-turn

After it became clear that these legal barriers prevented Mentor from competing effectively against Quiekturn, Mentor began exploring the possibility of acquiring Quick-turn. If Mentor owned Quiekturn, it would also own the patents, and be in a position to “unenforce” them by seeking to vacate Quickturn’s injunctive orders against Mentor in the patent litigation. 19

The exploration process began when Mr. Bernd Braune, a Mentor senior executive, retained Arthur Andersen (“Andersen”) to advise Mentor how it could successfully compete in the emulation market. The result was a report Andersen issued in October 1997, entitled “PROJECT VELOCITY” 20 and “Strategic Alternatives Analysis.” The Andersen report identified several advantages and benefits Mentor would enjoy if it acquired Quiekturn. 21

The Andersen report also analyzed whether Mentor would create more value by selling Meta or by purchasing Quiekturn. Andersen concluded that selling Meta would eliminate (for Mentor) Meta’s forecasted 1998 loss of $3.4 million 22 and would possibly bring $50 million in a sale. Acquiring Quiekturn, on the other hand, would enable Mentor to sell its Meta products worldwide; obtain Quick-turn’s product line, manufacturing facilities, and sales force; and ultimately provide Mentor $610-$640 million of value. Lastly, Andersen concluded that Mentor could pay $300 to $320 million about $16.80 to $17.90 per share — to acquire Quiekturn and still create an additional $290-$320 million in synergistic value for Mentor. 23

Six weeks later, in December 1997, Mentor retained Salomon Smith Barney (“Salomon”) to act as its financial advisor in connection with a possible acquisition of Quiekturn. Solomon prepared an extensive study which it reviewed with Mentor’s senior executives in *32 early 1998. The Solomon study concluded that although a Quickturn acquisition could provide substantial value for Mentor, Mentor could not afford to acquire Quickturn at the then-prevailing market price levels. Ultimately, Mentor decided not to attempt an acquisition of Quickturn during the first half of 1998. After Quickturn’s stock price began to decline in May 1998, however, Gregory Hinckley, Mentor’s Executive Vice President, told Dr. Rhines that “the market outlook being very weak due to the Asian crisis made it a good opportunity” to try acquiring Quick-turn for a cheap price. 24 Mr. Hinckley then assembled Mentor’s financial and legal advis-ors, proxy solicitors, and others, and began a three month process that culminated in Mentor’s August 12, 1998 tender offer. During that three month period, Hinckley placed a high premium on secrecy, cautioning the persons involved in preparing the bid not to take any notes and to destroy all relevant documents. 25

D. Mentor’s Reasons For Acquiring Quickturn

The foregoing facts, which are not seriously disputed, show that a major purpose of Mentor’s hostile bid for Quickturn was (and is) to eliminate the obstacles, caused by Quickturn’s enforcement of its patents, to Mentor’s reentry into the U.S. market.

At trial, Dr. Rhines denied that is Mentor’s purpose in seeking to acquire Quickturn, but I find that not credible. Dr. Rhines denied giving a presentation to the Mentor board at a July 22,1998 Mentor special board meeting called for the purpose of approving Mentor’s planned offer for Quickturn. He also denied having told the board that acquiring Quick-turn was important because it would allow Mentor to sell its products in the United States. 26 At least three other persons who attended the July 22 meeting, however, have contradicted Dr. Rhines’ testimony. Jon Shirley and Fontaine Richardson, two of Mentor’s outside directors, testified in their depositions that Dr. Rhines was the first person to make a presentation at Mentor’s July 22 board meeting, and that Dr. Rhines specifically stated that an acquisition of Quickturn by Mentor would allow Mentor to sell its emulation products in the United States. 27 Daniel Burch, Mentor’s proxy solicitor who also attended that meeting, testified to that same effect. 28

Also difficult to believe is Dr. Rhines’ testimony that he did not know of the Federal Circuit’s August 5, 1998 decision affirming the injunction granted by the Oregon Federal Court before Mentor commenced its hostile offer. 29 At trial, Rhines testified that he closely follows the patent litigation between the two companies. 30 It is inconceivable that, *33 during the time Dr. Rhines was meeting with Mentor’s lawyers about making a hostile bid, he was not told about a matter of such importance as the appellate court decision affirming an injunction that prohibited Mentor from further competing against Quick-turn in the United States, and that precluded Mentor from further challenging the validity of Quickturn’s patents. In short, the Court finds no basis to credit Mentor’s contention that its hostile bid is unrelated to the patent litigation.

E. Mentor Launches Its Offer and Proxy Contest.

On August 11, 1998, the evening before Mentor launched its bid, Dr. Rhines scheduled a dinner with Glen Antle, Quickturn’s board chairman. After dinner Dr. Rhines informed Mr. Antle that Mentor would be launching a hostile tender offer for the outstanding shares of Quiekturn the next morning. Dr. Rhines then handed Mr. Antle a previously prepared letter to that effect. At no time during the three month planning period did Mentor ever attempt to contact Quickturn’s management or its board to negotiate a consensual deal. 31

The next morning, on August 12, 1998, Mentor announced an unsolicited cash tender offer for all outstanding common shares of Quiekturn at $12,125 per share — a price representing an approximate 50% premium over Quickturn’s immediate pre-offer price, and a 20% discount from Quickturn’s February 1998 stock price levels. Mentor’s tender offer, once consummated, would be followed by a second step merger in which Quickturn’s nontendering stockholders would receive, in cash, the same $12,125 per share tender offer price. Mentor also announced its intent to solicit proxies to replace the board at a special meeting. Relying upon Quickturn’s then-applicable by-law provision governing the call of special stockholders meetings, Mentor began soliciting agent designations from Quiekturn stockholders to satisfy the by-law’s stock ownership requirements to call such a meeting. 32

p. Quickturn’s Defensive Responses

Under the Williams Act, Quiekturn was required to inform its shareholders of its response to Mentor’s offer no later than ten business days after the offer was commenced. During that ten day period, the Board met three times — on August 13, 17, and 21,1998 — to consider Mentor’s offer and decide what response to make.

1. The August 13, 1998 Board Meeting

The Quiekturn board first met on August 13, 1998, the day after Mentor publicly announced its bid. 33 All board members attended the meeting, for the purpose of evaluating Mentor’s tender offer. The meeting lasted for several hours. Before or during the meeting, each board member received a package that included (i) Mentor’s press release announcing the unsolicited offer; (ii) Quickturn’s press release announcing its board’s review of Mentor’s offer; (iii) Dr. Rhines’s August 11 letter to Mr. Antle; (iv) the complaints filed by Mentor against Quiekturn and its directors; and (v) copies of Quicktum’s then-current Rights Plan and bylaws.

The board first discussed retaining a team of financial advisors to assist it in evaluating Mentor’s offer and the company’s strategic alternatives. The board discussed the im *34 portance of selecting a qualified investment bank, and considered several investment banking firms. Aside from Hambrecht & Quist (“H & Q”), Quicktum’s long-time investment banker, other firms that the board considered included Goldman Sachs & Co. and Morgan Stanley Dean Witter. Ultimately, the board selected H & Q, because the board believed that H & Q had the most experience with the EDA industry in general and with Quickturn in particular. 34

During the balance of the meeting, the board discussed for approximately one to two hours (a) the status, terms, and conditions of Mentor’s offer; (b) the status of Quickturn’s patent litigation with Mentor; (e) the applicable rules and regulations that would govern the board’s response to the offer required by the Securities Exchange Act of 1934 (the “34 Act”); (d) the board’s fiduciary duties to Quickturn and its shareholders in a tender offer context; (e) the scope of defensive measures available to the Company if the board decided that the offer was not in the best interests of the company or its stockholders; (f) Quickturn’s then-current Rights Plan and special stockholder meeting by-law provisions; (g) the need for a federal antitrust filing; and (h) the potential effect of Mentor’s offer on Quickturn’s employees. The board also instructed management and H & Q to prepare analyses to assist the directors in evaluating Mentor’s offer, and scheduled two board meetings, for August 17 and August 21,1998.

2. The August 17, 1998 Board Meeting

The Board next met on August 17, 1998. That meeting centered around financial presentations by management and by H & Q. Mr. Keith Lobo, Quickturn’s President and CEO, presented a Medium Term Stategie Plan, which was a “top down” estimate detailing the economic outlook and the company’s future sales, income prospects and future plans (the “Medium Term Plan”). The Medium Term Plan contained an optimistic (30%) revenue growth projection for the period 1998-2000. After management made its presentation, H & Q supplied its valuation of Quickturn, which relied upon a “base case” that assumed management’s 30% revenue growth projection. On that basis, H & Q presented various “standalone” valuations based on various techniques, including a discounted cash flow (“DCF”) analysis. Finally, the directors discussed possible defensive' measures, but took no action at that time. 35

Mentor assiduously challenges management’s projections and the valuations of Quickthrn that flow from them. Mentor claims that the projections had no basis in reality or historical experience, and in essence were cobbled together to justify the board’s anticipated rejection of, and defensive responses to, Mentor’s offer. 36 The defendants answer that the board carefully questioned management about their projections, and that the directors had a good faith basis to conclude that those projections were achievable. The issue, however, is not whether the projections were substantively right or wrong, but whether the board had a basis to believe they were reasonable. Having considered the evidence, including the testimony of Quickturn’s trial witnesses which I find credible, I am satisfied that the *35 board had grounds to anticipate that the company could “turn around” in a year and perform at the projected revenue levels.

3. The August 21, 1998 Board Meeting

The board held its third and final meeting in response to Mentor’s offer on August 21, 1998. Again the directors received extensive materials and a further detailed analysis performed by H & Q. The focal point of that analysis was a chart entitled “Summary of Implied Valuation.” That chart compared Mentor’s tender offer price to the Quickturn valuation ranges generated by H & Q’s application of five different methodologies. 37 The chart showed that Quickturn’s value under all but one of those methodologies was higher than Mentor’s $12,125 tender offer price.

a. The Board Rejects Mentor’s Offer as Inadequate

After hearing the presentations, the Quick-turn board concluded that Mentor’s offer was inadequate, and decided to recommend that Quickturn shareholders reject Mentor’s offer. The directors based their decision upon: (a) H & Q’s report; 38 (b) the fact that Quickturn was experiencing a temporary trough in its business, which was reflected in its stock price; (c) the company’s leadership in technology and patents and resulting market share; (d) the likely growth in Quickturn’s markets (most notably, the Asian market) and the strength of Quiekturn’s new products (specifically, its Mercury product); (e) the potential value of the patent litigation with Mentor; and (f) the problems for Quickturn’s customers, employees, and technology if the two companies were combined as the result of a hostile takeover.

b. The Defensive Measures

At the August 21 board meeting, the Quickturn board adopted two defensive measures in response to Mentor’s hostile takeover bid.

First, the board amended Article II, § 2.3 of Quickturn’s by-laws, which permitted stockholders holding 10% or more of Quick-turn’s stock to call a special stockholders meeting. The By-Law Amendment provides that if any such special meeting is requested by shareholders, the corporation (Quickturn) would fix the record date for, and determine the time and place of, that special meeting, which must take place not less than 90 days nor more than 100 days after the receipt and determination of the validity of the shareholders’ request. 39

Second, the board amended Quickturn’s shareholder rights plan (“Rights Plan”) by eliminating its “dead hand” feature and replacing it with the Deferred Redemption Plan (“DRP”), under which no newly elected board could redeem the Rights Plan for six months after taking office, if the purpose or effect of the redemption would be to facilitate a transaction with an “Interested Person” (one who proposed, nominated or financially supported the election of the new directors to the board). 40 Mentor would be an Interested Person.

*36 The effect of the By-Law Amendment would be to delay a shareholder-called special meeting for at least three months. The effect of the DRP would be to delay the ability of a newly-elected, Mentor-nominated board to redeem the poison pill for six months, in any transaction with an Interested Person. 41 Thus, the combined effect of the two defensive measures would be to delay any acquisition of Quiekturn by Mentor for at least nine months.

G. The Board’s Reasons for Adopting the Defensive Measures

Because of them importance, the board’s reasons for adopting the two defensive measures were the subject of substantial deposition and trial testimony. That testimony, together with the other evidence that bears on those issues, is next discussed.

1. The By-Law Amendment

The evidence, fairly summarized, shows that the board amended Article II, § 2.3 of the by-laws to delay the holding of a shareholder-called special meeting, in order to protect the shareholders from stampeding into a decision without adequate time to become informed and for reflection. The 90 to 100 day period was chosen because it corresponded to the delay period mandated by Quick-turn’s preexisting “advance notice” by-law (Article II, § 2.5). The advance notice bylaw requires shareholders who seek (inter alia) to nominate opposition candidates for election to the board of directors, to give advance notice of their intent and furnish certain prescribed information about the opposition candidates, at least 90 to 100 days before the scheduled date of the annual or special meeting. The 90 to 100 day delay period of the By-Law Amendment was also chosen to eliminate any argument that the advance notice by-law did not apply to special meetings called by shareholders pursuant to Article II, § 2.3. 42

2. The Board’s Reasons for Adopting the DRP

As earlier noted, by adopting the DRP, the Quiekturn board built into the process a six month delay period in addition to the 90 to 100 day delay mandated by the By-Law Amendment. The DRP would accomplish that by prohibiting any newly elected board, a majority of whose members were nominated by the proposed acquiror, from redeeming the poison pill for six months following their election, if the redemption would facilitate a transaction with an “Interested Person” (ie., the acquiror).

The board’s reasons for adopting the DRP are hotly disputed and the briefs on this point are at times confusing. The Court’s analysis of, and the conclusion it draws from, that evidence, is set forth in Part IV of this Opinion and will not be repeated here. Suffice it to say that the Court finds that the board’s stated rationale for adopting the DRP was to afford any newly elected board sufficient time to adequately inform itself about Quiekturn, its business, and its true value, and also to allow stockholders sufficient time to consider alternatives, before the board decided to sell the company to any acquiror. 43

H. This Litigation and the Present Status of the Controversy

Mentor filed this action on August 12, 1998, seeking (i) a declaratory judgment that Quickturn’s newly adopted takeover defenses are invalid, and (ii) an injunction requiring the Quiekturn board to dismantle those defenses. After expedited discovery, the defendants moved for summary judgment. Following extensive briefing and oral argument, the Court denied defendants’ motion *37 on October 9, 1998. 44 A trial was held on October 19, 20, 23, 26, and 28, 1998, during which the parties amassed a voluminous record; thereafter, the parties submitted extensive post trial briefs on an expedited schedule.

During the course of the litigation, the Quickturn board, relying upon the By-Law Amendment, noticed the special meeting requested by Mentor from January 8, 1999 — 71 days after the October 1, 1998 meeting date originally noticed by Mentor. 45 After the trial, Mentor announced in Amendments to its Schedule 14A-1 that were filed with the S.E.C., that it had received tenders of Quick-turn shares which, together with the shares that Mentor already owned, represent over 51% of Quickturris outstanding stock. 46

II. THE CONTENTIONS

The plaintiffs claim that the By-Law Amendment and the DRP should be invalidated on four separate grounds. 47 Because the parties’ contentions are elaborated more fully in those sections of this Opinion that relate specifically to each defensive provision, (see Parts III and IV, infra), those contentions are summarized only briefly at this point.

First, the plaintiffs contend that the defensive measures are invalid under Blasius Indus., Inc. v. Atlas Corp., (“Blasius”), 48 because they constitute a purposeful interference with the stockholder franchise without a compelling justification. Specifically, plaintiffs argue that the By-Law Amendment impermissibly impedes the stockholder franchise by imposing (i) a 90-100 day delay between the date of Mentor’s call of a special stockholders meeting and.the date of that meeting, and (ii) a 71 day delay between the meeting date noticed by Mentor and the meeting date noticed by Quickturn. That delay is claimed to infringe upon the stockholders’ franchise because (i) it creates a structure in which a stockholder vote is either impotent or self-defeating, and (ii) it coerces Quickturn stockholders to not vote, or to abstain from voting, or to vote for the incumbent board who are the only directors with full power to redeem the pill after a successful proxy contest. Lastly, plaintiffs argue that the Quickturn board has not shown a compelling justification for either defensive measure.

Second, the plaintiffs claim that the board’s adoption of the defensive measures constituted a breach' of fiduciary duty under the dual-pronged test of Unocal Corp. v. Mesa Petroleum Co. (“Unocal ”), 49 as elaborated in Unitrin Inc. v. American Gen. Corp. (“Unitrin”). 50 The plaintiffs contend that the Quickturn board did not have reasonable grounds to conclude that Mentor’s bid was a threat to corporate policy and effectiveness.

The plaintiffs also argue that the board’s defensive responses (the By-Law Amendment and the DRP) were preclusive, coercive, and fell outside a “range of reasonable *38 ness.” The defensive measures are said to be coercive for the same reasons that they are violative of Blasius. The defensive measures are also claimed to be preclusive because the DRP will prevent a newly elected board consisting of Mentor’s nominees from immediately consummating Mentor’s offer, and because the combined defensive measures will create a lengthy delay period that virtually assures that Mentor’s offer will be withdrawn before the nonredemption period expires. Finally, the plaintiffs contend that the defensive measures fall outside a range of reasonableness because they are unresponsive to the threat perceived by the Quickturn board and because they have no relationship to the board’s purported justifications for adopting the two defensive measures.

Third, the plaintiffs claim that the Quickturn board breached its duty of care under Cede & Co. v. Technicolor. Inc. 51 and Smith v. Van Gorkom. 52 Specifically, they contend that (i) the board erroneously relied on a flawed H & Q report in concluding there was a threat; (ii) the Quickturn board and its advisors did not understand the DRP they had adopted, yet proceeded to implement the DRP and the By-Law Amendment without regal'd to their impact on Quickturn’s shareholders upon Mentor’s offer and proxy contest; and (iii) the Quickturn board did not receive competent legal advice concerning the effect of the defensive measures.

Fourth, the plaintiffs contend that the DRP is ultra vires under 8 Del. C. § 141(a), and is therefore invalid as a matter of law.

To promote clarity, the Court first addresses, in Part III, the claims of invalidity relating to the By-Law Amendment. Thereafter, in Part IV, it adjudicates the invalidity claims advanced against the DRP. The Court’s disposition of those claims makes it unnecessary to address the plaintiffs’ due care 53 and ultra vires contentions.

III. ANALYSIS OFTHE BYLAW AMENDMENT

A. Introduction and the Issue Presented

As earlier noted, 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, § 2.8, 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 board amended § 2.3 in response to the Mentor bid, to read as follows: 54

A special meeting of the stockholders may be called at any time by (i) the board of directors, (ii) the chairman of the board, (hi) 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 uniting 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 stick meeting in the manner set *39 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.b hereof, that a meeting will be held at the time and place so determined.

As the Court has found, the 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 By-Law Amendment responded to those concerns by explicitly making the 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. 55

The plaintiffs attack the By-Law Amendment on two separate fiduciary duty grounds. First, they argue that the Amendment purposefully interferes with the shareholders’ voting franchise without compelling justification, and therefore is invalid under Blasius because the 90 to 100 day delay, when added to the 6 month nonredemption period imposed by the DRP, ensures to a near certainty that Mentor will lose the election contest. The reason, plaintiffs claim, is that shareholders who would otherwise favor Mentor’s slate will be coerced either to vote against Mentor or to abstain from voting altogether.

Second, the plaintiffs claim that the Amendment contravenes the fiduciary precepts underlying Unocal and Unitrin, because it is a highly disproportionate response to any reasonably perceived threat posed by Mentor’s offer. Specifically, the plaintiffs contend that the Amendment, coupled with the DRP, (a) is coercive for the same reasons that render it invalid under Blasius; and (b) is preclusive because even if Mentor’s nominees win the election contest, the new board’s inability to redeem the poison pill for six months creates an unacceptably high risk that the offer will be withdrawn before the tendered shares can lawfully be purchased. Finally, plaintiffs argue that (c) in any event, and independent of the DRP, the By-Law Amendment falls outside the range of potentially reasonable responses, because the 90 to 100 day delay far exceeds whatever time would be needed to achieve the Amendment’s purpose of affording shareholders the opportunity to make an informed decision about which director slate to vote for.

I conclude, for the reasons next discussed, that these challenges to the By-Law Amendment lack merit. All but one of them assume the validity of the DRP. To say it differently, both the Blasius claim and the “coerciveness” and “preclusivity” components of the Unocal/Unitrin claim challenge the By-Law Amendment as part of a combined package consisting of the Amendment and the DRP. Those arguments do not challenge the validity of the By-Law Amendment per se and on a “standalone” basis. Because the Court determines that the DRP is invalid on fiduciary duty grounds (see Part IV, infra, of this Opinion), and because both sides agree that Quickturn’s shareholders will be informed of the Court’s ruling as to the DRP in advance of the shareholder meeting, any concerns about the DRP’s impact upon the election contest and the Mentor offer will become moot. 56

Accordingly, the only By-Law Amendment-related issue that the Court must de *40 cide is whether the Amendment, standing alone, falls outside any range of potentially reasonable responses to that threat and therefore constitutes a disproportionate response to the threat posed by the Mentor offer and proxy contest.

In deciding whether the By-Law Amendment falls within a range of reasonable responses, the guiding principle is reasonableness, not perfection. So long as a reviewing Court finds that the defensive measure (assuming it is neither coercive nor preclusive) was objectively reasonable when adopted, the measure must be upheld even if hindsight later reveals other choices that arguably were better or wiser. 57 Although a determination of this kind is fact specific and not constrained by any prescribed formula, among the factors the Court must consider is 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,” 58 and whether the response “was limited and corresponded in degree or magnitude to the degree or magnitude of the threat.” 59

B. The Reasonableness of the Amended By-Law’s 90 to 100 Day Delay Period

Whether the Amendment is a response proportionate to the threat necessarily depends upon the nature of the threat the board reasonably perceived. The threat here resulted from the incompleteness of the original Article II, § 2.3 of the By-Laws, which permitted stockholders having the requisite number of voting shares to call a special stockholders meeting “at any time,” yet failed to specify who would determine the time, place, and record date for the meeting. The perceived threat was that a hostile bidder seeking to replace the board would rely upon that lacuna in § 2.3 to call a special meeting on minimal notice, and thereby force Quickturn’s shareholders to decide which director slate should be elected without adequate tíme to become properly informed.

The By-Law Amendment was a response to that threat. The specific feature of that response which the plaintiffs contend is pernicious, is its mandated 90 to 100 day delay period between the shareholders’ request for, and the holding of, a stockholder-initiated special meeting. 60 That feature is *41 disproportionate, plaintiffs argue, because a delay of that magnitude cannot be justified in terms of the By-Law’s stated purpose: to afford shareholders sufficient time to make an informed decision. Plaintiffs emphasize that most proxy contests conclude within 30 to 35 days, and that shareholders — particularly the sophisticated insider and institutional investors who hold significant amounts of Quickturn’s stock — do not need thrice that much time to inform themselves about the relative merits of competing director slates. Plaintiffs conclude that because the board has failed to show how the 90 to 100 day •delay period was tailored to achieve the Amendment’s avowed purpose, and also because this case does not involve the limited circumstances our courts have held could justify a board-caused delay of a stockholders meeting, 61 the By-Law Amendment is unreasonable and must be stricken.

The plaintiffs do not dispute that the period intervening between the call and the holding of a stockholders meeting to elect directors should be long enough to give the shareholders a reasonable opportunity to inform themselves about the issues presented, particularly where the election is contested. Nor do the plaintiffs dispute that the Quick-turn board had the statutory authority to adopt a by-law (or amend a pre-existing bylaw) to mandate such a reasonable interval. Thus, the issue becomes whether the 90 to 100 day delay interval chosen by the Quick-turn board is reasonable in relation to that purpose.

The plaintiffs contend that it is not, because (to reiterate) most proxy contests are completed within 35 days, and the sophisticated insider and institutional investors who hold a large percentage of Quiekturn’s stock do not need a period three times that long to become informed. But even if that is true, surely that cannot be the exclusive measure or determinant of what delay is reasonable in this context. Some proxy contests may require more than 35 days to conclude; moreover, not all shareholders are insiders, institutions, 'or arbitrageurs. Some proxy contests may, because of their internal dynamics, be more protracted than others, and some shareholders may need more time than others to become informed and to reflect upon the information provided to them. A corporate board is entitled to consider such distinctions among shareholders when fashioning an appropriate defensive response. 62

Even plaintiffs concede that a board could reasonably adopt a by-law mandating a 35 day interval between the call and the holding of a special meeting, but from this it does not follow that a board acts unreasonably if it chooses a longer period. A decision of that kind is necessarily and inherently judgmental. It requires a reasoned, good faith effort by the board to select a delay period that will remedy the information problem without improperly deterring a dissenting shareholder from exercising its right to wage a proxy contest. In my view, the 90 to 100 day interval chosen by the Quickturn board, although it arguably may approach the outer *42 limit of reasonableness, 63 struck a proper balance in this specific case.

Before choosing the 90 to 100 day period, the board considered several alternatives, which included (i) repealing altogether