USA LAW AND PRACTICE Contributed by: George Casey, Heiko Schiwek, Elena Rubinov, Pierre-Emmanuel Perais, Clara Pang and Gregory Gewirtz, Linklaters LLP
10.3 Producing Financial Statements In a registered exchange offer or merger in which all or a portion of the merger consideration con- sists of securities, financial statement issues can add significant time and expense to the process, to the extent that financial statements – both of the acquired business and pro forma for the combined company – may be necessary. This depends on the magnitude of the transac- tion to the acquiror, and the requirement that financial statements filed with the SEC be pre- pared in accordance with US generally accepted accounting principles (GAAP) or International Financial Reporting Standards (IFRS) as promul- gated by the International Accounting Standards Board, or, failing those, with a reconciliation to GAAP. 10.4 Disclosure of Transaction Documents Parties generally may not include transaction agreement 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 deci- sion; otherwise, they can request confidential treatment for portions of filed transaction docu- ments. Nonetheless, the SEC may still request that such materials be submitted to it confiden- tially. See 10.1 Making a Bid Public .
In Delaware, the obligation of good faith under- lies 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 mak- ing a business decision, of all material informa- tion reasonably available to them and, based on such information, must act with due care in dis- charging their duties. Generally, directors 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 with- out self-interest and in the best interests of the corporation and its shareholders. Directors must refrain from fraudulent conduct, self-dealing and actions intended to entrench themselves in office. Furthermore, directors may not take per- sonal advantage of business opportunities at the expense of the corporation. Directors found to have breached their duty of loyalty may be subject to personal liability under Delaware law. While the approach to directors’ duties in Del- aware emphasises “the primacy of the share- holder”, some other states permit, and even require, the board to consider interests of other constituencies such as employees, customers and suppliers. 11.2 Special or Ad Hoc Committees Boards of directors will sometimes establish special or ad hoc committees, comprised of independent directors, to negotiate the terms of potential business combinations. Such spe- cial committee of the board will often be formed where the majority of the directors are not inde- pendent (or are conflicted), or when a controlling shareholder stands on both sides of the potential transaction or will receive different consideration in the transaction or in any side agreement to
11. Duties of Directors 11.1 Principal Directors’ Duties
The directors of a Delaware corporation owe two core fiduciary duties to the corporation and to its shareholders: • the duty of care; and • the duty of loyalty.
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