Dr. Robert Grossman founded Electro Cardia Systems Inc. (ECS), in 2005. The principal purpose of the firm was to engage in research and development of heart pump devices. Although the firm did not show a profit until 2010, by 2014 it reported after tax earnings of $1.2 million. The company had gone public in 2008 at $10.00 a share. Investors were initially interested in buying the stock because of its future prospects. By year-end 2014, the stock was trading at $42.00 per share because the firm had made good on its promise to produce life-saving heart pumps and, in the process, was now making reasonable earnings. With 850,000 shares outstanding EPS were $1.41.

Dr. Grossman and the members of the board of directors were initially pleased when another firm, Parker Medical Products, began buying their stock. John Parker, the chairman and CEO of Parker Medical Products, was thought to be a shrewd investor, and the fact that his firm bought 50,000 shares of ECS was taken as an affirmation of the success of the heart pump research firm. However, when Parker bought the next 50,000 shares, Dr. Grossman and members of the board of directors of ECS became concerned that John Parker and his firm might be trying to take over ECS.

Upon talking to his attorney, Dr. Grossman was reminded that ECS had a poison pill provision that took effect when any outside investor accumulated 25 percent or more of the shares outstanding. Current shareholders, excluding the potential takeover company, were given the privilege of buying up to 500,000 new shares of ECS at 80 percent of current market value. Thus, new shares were restricted to friendly interests. The attorney also found that Dr. Grossman and "friendly" members of the board of directors currently owned 175,000 shares of ECS.