A shareholder of an Illinois bank holding company has filed a class action that could trigger the company's year-old poison pill.
And if the courts rule in Mary K. Quinn's favor, Illini Corp., Springfield, Ill., would become the first community bank in the country to activate this kind of shareholder rights plan.
Ms. Quinn, who owns 21 shares of $154 million-asset Illini, contends in her suit that Illinois Stock Transfer Co. should have issued rights to dilute Illini's stock when shareholder Ida R. Knoll accumulated more than 10% of the banking company's shares in April. Under Illini's poison pill, the company must at least double its number of shares outstanding if a hostile party accumulates more than 10% of its shares.
Ms. Noll, daughter-in-law of the bank's founder, crossed that threshold in April when she received a stock gift from her mother.
Such shareholder rights plans are common among community banks that want to stay independent. But a poison pill has never been triggered because banks and hostile parties have always compromised, said Craig McCrohon, a lawyer at Freeborn & Peters in Chicago.
Illini's board, in fact, has agreed not to activate the poison pill if Ms. Noll sells enough shares to go below the 10% threshold by July 6. The directors say Ms. Noll accumulated her stake inadvertently and should not be considered hostile, according to Securities and Exchange Commission filings.
But Ms. Noll has no plan to divest shares, said her St. Louis attorney, Thomas C. Erb. Ms. Noll and her family, who control about 30% of the company's stock, oppose the poison pill because it makes it impossible for them to sell their shares in a block without activating the plan.
Since Ms. Noll has no plan to divest, Ms. Quinn believes the company is not honoring its poison pill, said James Ackerman, Ms. Quinn's lawyer. As the bank's agent, the Illinois Stock Transfer Co. would issue rights for additional shares to all stockholders except Ms. Noll, if the plan were activated, thus cutting her stake by at least half.
"It's pretty clear to me that the shareholders should already have their rights certificates," Mr. Ackerman said.
Theodore L. Eissfeldt, the lawyer representing Illini, said Ms. Quinn's suit is "baseless" because the decision to dilute the stock rests with the board, not the transfer company.
The first hearing in the case is scheduled June 23.