USA LAW AND PRACTICE Contributed by: George Casey, Heiko Schiwek, Elena Rubinov, Vinita Sithapathy, Kristina Trauger, Pierre-Emmanuel Perais, Clara Pang and Gregory Gewirtz, Linklaters
Accounting Standards Board, or, failing those, with a reconciliation to GAAP. 10.4 Disclosure of Transaction Documents Parties generally need not include transaction agree- ment schedules, exhibits or attachments that do not have terms that are material to the transaction or information that would otherwise be material to the shareholders’ investment decision; otherwise, they can request confidential treatment for portions of filed transaction documents. Nonetheless, the SEC may still request that such materials be submitted to it confidentially. See 10.1 Making a Bid Public . The directors of a Delaware corporation owe two core fiduciary duties to the corporation and to its share- holders: • the duty of care; and • the duty of loyalty. In Delaware, the obligation of good faith underlies these two core fiduciary duties. The duty of care requires directors to act in an informed and considered manner. Accordingly, directors must inform themselves, prior to making a business deci- sion, of all material information reasonably available to them and, based on such information, must act with due care in discharging their duties. Generally, direc- tors will be liable for a breach of their duty of care only if they are found to have acted with gross negligence. The duty of loyalty requires directors to act without self-interest and in the best interests of the corpora- tion and its shareholders. Directors must refrain from fraudulent conduct, self-dealing and actions intended to entrench themselves in office. Furthermore, direc- tors may not take personal advantage of business opportunities at the expense of the corporation. Direc- tors found to have breached their duty of loyalty may be subject to personal liability under Delaware law. 11. Duties of Directors 11.1 Principal Directors’ Duties
While the approach to directors’ duties in Delaware emphasises “the primacy of the shareholder”, other states permit, and even require, the board to consider other constituents’ interests (eg, employees, custom- ers and suppliers). 11.2 Special or Ad Hoc Committees Boards of directors will sometimes establish special or ad hoc committees, consisting of independent directors, to negotiate the terms of potential business combinations. Such special committees will often be formed where the majority of the directors are not independent (or are conflicted), or when a control- ling shareholder stands on both sides of the potential transaction or will receive different consideration in the transaction or in any side agreement to the detri- ment of the other shareholders. A properly functioning special committee should select and retain its own independent advisers, and the committee must be fully informed regarding the terms of the transaction and diligence. 11.3 Board’s Role Board’s Role in Negotiations Boards generally do not play an active role in M&A negotiations; however, they are expected to make the final decision on whether to approve a sale and recommend the sale and its terms to the target share- holders. Under the business judgement rule, Delaware courts will presume that directors have satisfied their fiduci- ary duties if they have made their decisions in good faith, on the basis of a reasonable investigation and after careful consideration of all material factors rea- sonably available, in accordance with what they hon- estly believe to be the best interests of the corporation and its shareholders. In applying the business judge- ment rule, Delaware courts will only consider whether a rational decision-making process has been dem- onstrated. Shareholder Litigation Litigation by shareholders is common in relation to acquisition of public companies in the USA; however, it is relatively uncommon for such litigation to com- pletely derail transactions, partly because:
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