fiduciary duty issues in m&a transactions - Jackson Walker LLP

More documents

Recommendations

Info

IX.E. In re Netsmart Technologies................................................................................216F. In re Topps Company Shareholders Litigation....................................................224G. In re Lear Corporation Shareholder Litigation ....................................................229M&A During the Credit Crunch......................................................................................234A. General.................................................................................................................234B. Pre-Crunch Sensitivity to Target Financial Stress...............................................235C. Bear Stearns. ........................................................................................................235D. Merrill Lynch.......................................................................................................241E. Wachovia. ............................................................................................................242F. Observations from Merrill Lynch, Bear Stearns and Wachovia..........................247X. Other Director Considerations.........................................................................................248A. Enforceability of Contracts Violative of Fiduciary Duties..................................248B. Director Consideration of Long-Term Interests. .................................................249C. Liability for Unlawful Distributions. ...................................................................250D. Reliance on Reports and Opinions.......................................................................251E. Inspection of Records. .........................................................................................251F. Bylaws..................................................................................................................251G. Right to Resign. ...................................................................................................254H. Ratification...........................................................................................................256XI.Asset Transactions...........................................................................................................257A. Shareholder Approval. .........................................................................................2571. DGCL.......................................................................................................2572. Texas Corporate Statutes. ........................................................................2603. Model Business Corporation Act.............................................................261B. De Facto Merger. .................................................................................................261XII. Dissent and Appraisal Rights. .........................................................................................262A. Delaware Law. .....................................................................................................2621. When DGCL Appraisal Rights Are Triggered. .......................................2622. Who Is Entitled to DGCL Appraisal Rights. ...........................................2653. Procedural Aspects of DGCL Appraisal..................................................2654. Valuation under DGCL............................................................................267B. Texas Corporate Statutes. ....................................................................................2671. When Texas Statutory Appraisal Rights Are Triggered. .........................2672. Who Is Entitled to Texas Statutory Appraisal Rights..............................2683. Procedural Aspects of Texas Statutory Appraisal. ..................................2684. Valuation under Texas Corporate Statutes. .............................................271C. Model Business Corporation Act.........................................................................271XIII. Alternative Entity Fiduciary Duties. ...............................................................................272A. General Partnership..............................................................................................272B. Limited Partnership..............................................................................................274C. Limited Liability Company..................................................................................280XIV.Conclusion.......................................................................................................................285Appendix A – Summary of the Sarbanes-Oxley Act of 2002Appendix B – Options Backdating Issues5446095v.1iv
Page 1 and 2: FIDUCIARY DUTY ISSUES IN M&A TRANSA
Page 3 and 4: TABLE OF CONTENTSPageI. Introductio
Page 5: VII.C. The Board’s Consideration.
Page 11 and 12: Faour v. Faour, 789 S.W.2d 620 (Tex
Page 13 and 14: Johnson v. J. Hiram Moore, Ltd., 76
Page 15 and 16: 135, 136, 139, 160, 164, 182, 183,
Page 17 and 18: In re Resorts International Shareho
Page 19 and 20: In re Tyson Foods, Inc. Consolidate
Page 21 and 22: intended to protect investors by im
Page 23 and 24: has been characterized as including
Page 25 and 26: The Delaware Code subjects director
Page 27 and 28: and commented that (i) the duty of
Page 29 and 30: [I]f the acts or things are or may
Page 31 and 32: agents unless the directors either
Page 33 and 34: of the corporation, and in a manner
Page 35 and 36: While Caremark recognizes a cause o
Page 37 and 38: with the notable exception of the c
Page 39 and 40: e other examples of bad faith yet t
Page 41 and 42: and reporting system existed.” KP
Page 43 and 44: good faith attempt to follow the pr
Page 45 and 46: The Court compared Citigroup with t
Page 47 and 48: d. Candor.Where directors approve a
Page 49 and 50: By stating that they “careful[ly]
Page 51 and 52: seek out the advice of legal counse
Page 53 and 54: c. Inaction.In many cases, of cours
Page 55 and 56: ecome fiduciaries only when they ar
Page 57 and 58:
demand upon the Board is likely to
Page 59 and 60:
There are two ways that a plaintiff
Page 61 and 62:
In Texas a shareholder bringing a d
Page 63 and 64:
a derivative plaintiff’s shares i
Page 65 and 66:
• An audit committee 160 composed
Page 67 and 68:
(b) NYSE Per Se Independence Disqua
Page 69 and 70:
Relationship Provision”). The NAS
Page 71 and 72:
For companies that operate through
Page 73 and 74:
any director is deemed independent
Page 75 and 76:
e. State Law.Under state law and un
Page 77 and 78:
Under Delaware law, an “independe
Page 79 and 80:
elationships can also impair indepe
Page 81 and 82:
charter, bylaw or contractual indem
Page 83 and 84:
known to the shareholders, or (iii)
Page 85 and 86:
allow fiduciary duties or the conse
Page 87 and 88:
in its certificate of formation or
Page 89 and 90:
and its restructuring efforts. 222
Page 91 and 92:
insolvent corporation may benefit f
Page 93 and 94:
Under the “balance sheet” test
Page 95 and 96:
duty to exercise their business jud
Page 97 and 98:
their fiduciary duties. This ill-co
Page 99 and 100:
Rather than attempting a direct cre
Page 101 and 102:
egarding the assets sale and cited
Page 103 and 104:
Where directors of an insolvent cor
Page 105 and 106:
(i) that the bankruptcy trustee sto
Page 107 and 108:
Also elucidating was the Vice Chanc
Page 109 and 110:
F. Conflicts of Interest.Conflicts
Page 111 and 112:
helpful guidance about the types of
Page 113 and 114:
whose interests they represent are
Page 115 and 116:
The precise question is whether the
Page 117 and 118:
this kind, which does not involve d
Page 119 and 120:
deem a director to lack independenc
Page 121 and 122:
some instances prior to being prese
Page 123 and 124:
their equity in order to give the c
Page 125 and 126:
where other backdating cases involv
Page 127 and 128:
Chancellor ordered the defendants t
Page 129 and 130:
shareholder approval of an incentiv
Page 131 and 132:
might not have shareholder interest
Page 133 and 134:
As in Ryan and Tyson, issues of bac
Page 135 and 136:
The Valeant case illustrates how co
Page 137 and 138:
standard. The Court in Valeant expl
Page 139 and 140:
The fiduciary duties of directors a
Page 141 and 142:
corporation.” 348 “[T]he burden
Page 143 and 144:
good faith belief that they are act
Page 145 and 146:
Communications Inc. v. QVC Network
Page 147 and 148:
eview there will be no “bright li
Page 149 and 150:
1. Matters Considered.Where an offe
Page 151 and 152:
prepared by the investment bankers
Page 153 and 154:
with directors or controlling share
Page 155 and 156:
appeared to abdicate their responsi
Page 157 and 158:
independent Hunt board suffers from
Page 159 and 160:
freedom to negotiate at arm’s len
Page 161 and 162:
plan and the special committee’s
Page 163 and 164:
went on to dispose of the plaintiff
Page 165 and 166:
involvement in sale of control tran
Page 167 and 168:
In Disney, the Delaware Supreme Cou
Page 169 and 170:
e interested in acquiring Lyondell
Page 171 and 172:
their duties.” The trial court de
Page 173 and 174:
The Loral Board did not consider a
Page 175 and 176:
Holding that Revlon was applicable
Page 177 and 178:
the management team sold the subsid
Page 179 and 180:
scrutiny, with its burden on the di
Page 181 and 182:
e. In MSB Bancorp, 509 the Delaware
Page 183 and 184:
2. Ascertaining Value.When the Revl
Page 185 and 186:
might acquire MONY. The Board consi
Page 187 and 188:
participate directly in the negotia
Page 189 and 190:
In its proposed merger agreement co
Page 191 and 192:
In a marketplace where strategic bu
Page 193 and 194:
substantial risk that the KKR Group
Page 195 and 196:
DGCL § 251(b)(5) and the Texas Cor
Page 197 and 198:
What is necessary, and I suppose wh
Page 199 and 200:
negotiate ... must be an informed o
Page 201 and 202:
the lock-up resulted in an enhanced
Page 203 and 204:
[S]olicit, encourage, discuss, nego
Page 205 and 206:
d. In Vitalink, 604 the court held
Page 207 and 208:
produce a satisfactory transaction,
Page 209 and 210:
value of the $0.90 per share, all s
Page 211 and 212:
oard from continuing to exercise it
Page 213 and 214:
provision requiring the target to c
Page 215 and 216:
But a stockholder vote is not like
Page 217 and 218:
generally restricts the ability of
Page 219 and 220:
Match rights have been described in
Page 221 and 222:
press release should have been more
Page 223 and 224:
A target without a staggered Board
Page 225 and 226:
exchanges, mortgages, transfers and
Page 227 and 228:
Alamo.” The Special Committee may
Page 229 and 230:
creating incentives for stockholder
Page 231 and 232:
provision in the certificate of inc
Page 233 and 234:
oard majority consisting of directo
Page 235 and 236:
E. In re Netsmart TechnologiesThe D
Page 237 and 238:
allowed the board to entertain unso
Page 239 and 240:
called a Revlon duty for the case w
Page 241 and 242:
The Court was critical of the lack
Page 243 and 244:
financial point of view, to the sha
Page 245 and 246:
maximizing the price the stockholde
Page 247 and 248:
Financing. Although the Upper Deck
Page 249 and 250:
During those negotiations, Icahn on
Page 251 and 252:
plead facts suggesting a fair infer
Page 253 and 254:
face the question of how much proce
Page 255 and 256:
mortgage-backed debt issued by an a
Page 257 and 258:
Prior to the shareholder vote on th
Page 259 and 260:
The court found that the directors
Page 261 and 262:
in the overall context; checking th
Page 263 and 264:
The Board also was aware that the F
Page 265 and 266:
• Following the Board’s approva
Page 267 and 268:
courts in other situations may stri
Page 269 and 270:
C. Liability for Unlawful Distribut
Page 271 and 272:
In CA, Inc. v. AFSCME Employees Pen
Page 273 and 274:
adverse to, those of the corporatio
Page 275 and 276:
H. Ratification.Ratification refers
Page 277 and 278:
In Hollinger Inc. v. Hollinger Inte
Page 279 and 280:
2. Texas Corporate Statutes.Difficu
Page 281 and 282:
corporation, or other entity did no
Page 283 and 284:
equally to stockholders of the surv
Page 285 and 286:
obtaining an approval. 808 The pre-
Page 287 and 288:
shares at a fair price (as determin
Page 289 and 290:
day after the date the corporation
Page 291 and 292:
of the fair value of the shares and
Page 293 and 294:
under TUPA. 857 A managing partner
Page 295 and 296:
e used to test general partner cond
Page 297 and 298:
e respected by courts when they are
Page 299 and 300:
measured, if the standards are not
Page 301 and 302:
(d) Unless otherwise provided in a
Page 303 and 304:
the LLC context “to the maximum e
Page 305 and 306:
supplemented to a large degree by e
Page 307 and 308:
Form 10-QSB and Form 10-KSB are sub
Page 309 and 310:
Accounting firms may generally prov
Page 311 and 312:
CEO/CFO Reimbursement to Issuer. SO
Page 313 and 314:
• Provide reasonable assurance re
Page 315 and 316:
procedures according to the facts a
Page 317 and 318:
Codes of Ethics. As instructed by S
Page 319 and 320:
Appendix BOPTIONS BACKDATING ISSUES
Page 321 and 322:
date the fair market value of the s
Page 323 and 324:
The SEC Chief Accountant recognized
Page 325 and 326:
still not comply with the requireme
Page 327 and 328:
how the option exercise price is to
Page 329 and 330:
knowledge of the certifying officer
Page 331 and 332:
investigations pending as of March
Page 333 and 334:
waiver of any attorney-client privi
Page 335 and 336:
• Accounting for Discounted Optio
Page 337 and 338:
• Patterns of transactions or con
Page 339 and 340:
• The grant date fair value;• T
Page 341 and 342:
Appendix CSummary of SEC ExecutiveC
Page 343 and 344:
Three-year phase-in—no requiremen
Page 345 and 346:
• Compensation committee calendar
Page 347 and 348:
• Up to 2 additional persons for
Page 349 and 350:
• Otherwise, an item is a perquis
Page 351 and 352:
• Material terms of awards, inclu
Page 353 and 354:
Tables Related to Post-Employment P
Page 355 and 356:
officer was a named executive offic
Page 357:
materially amended in connection wi
show all

fiduciary duty issues in m&a transactions - Jackson Walker LLP

Create successful ePaper yourself

Delete template?

Save as template?