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February 2012
LexisNexis® Emerging Issues Analysis
Frank Aquila, Melissa Sawyer and Keerthika Subramanian on
SPEED READING: TOP 10 ISSUES TO CONSIDER WHEN ADVISING
A SPECIAL COMMITTEE IN A GOING PRIVATE TRANSACTION
2012 Emerging Issues 6205
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The Delaware Chancery Court (the “Court”) applies the entire fairness standard of
review rather than the more deferential business judgment rule to going private
transactions involving controlling stockholders. 1 Under the entire fairness standard, a
board must prove that both the process by which it approved the transaction and the
terms of the transaction are fair to the public stockholders of the corporation.
The rationale for applying heightened scrutiny to going private transactions involving
controlling stockholders is that the controlling stockholder has a conflict of interest vis-àvis the public shareholders and may exercise sufficient control over the corporation to
engage in self-dealing, to the detriment of the minority stockholders.
Cognizant of these issues, corporations engaged in transactions with controlling
stockholders often form special committees to mitigate potential fiduciary duty concerns
and conflicts of interest. Special committees are typically designed to ensure that a
board’s decision to enter into a controlling stockholder transaction is well informed, fair,
and free from improper influence. To that end, special committees are usually
comprised of independent and disinterested directors.
To serve their purpose of minimizing litigation risk, special committees must be formed
and used properly. This article highlights ten issues lawyers should consider when
advising special committees in going private transactions involving controlling
stockholders.
1. Recognize Red Flags: Does the decision maker have a material conflict of
interest?. In deciding whether a corporation engaged in a going private transaction by a
controlling stockholder should form a special committee, the board must first determine
whether any of the directors have material conflicts of interest in connection with the
transaction.
1 Under the Delaware General Corporation Law, a controlling stockholder is typically one who either owns more than 50% of the
shares of the corporation or otherwise exerts significant control over the affairs of the corporation. In some cases, the Court will
look beyond the numerical requirements and deem a stockholder controlling if it possesses “formidable voting and managerial
power.” (In re PNB Holding Co. Stockholders Litigation, C.A. No. 28-N, 2006 Del. Ch. LEXIS 158, *31 (Del. Ch. Aug. 18, 2006)).
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Not all conflicts of interest automatically warrant the formation of a special committee—
only material conflicts of interest must be considered. A material conflict of interest
exists when a director has an interest in a transaction that is not in the best interest of
the corporation or that is unfair to the stockholders.2
The analysis of whether a particular director has a material conflict of interest is highly
fact-specific and depends heavily upon the extent of the director’s dealings with the
controlling stockholder. Directors and their counsel should ask the following questions in
determining whether a director has a material conflict of interest:
•
•
•
Does the director, his family member, or his close relative have a current
and ongoing financial relationship or employment arrangement with a
controlling stockholder, its affiliates, or its subsidiaries?
Has the director, his family member, or his close relative had substantial
prior business dealings with a controlling stockholder, its affiliates, or its
subsidiaries?
Does the director, his family member, or his close relative have a close
personal or other relationship with a controlling stockholder, its affiliates,
or its subsidiaries that would indicate that the director would be unduly
influenced by the controlling stockholder?
Practice Pointer: Not all material conflicts of interest are problematic. Delaware
jurisprudence has established that self-interest, without a further showing of impropriety,
does not rise to the level of a disqualifying material conflict of interest. 3 Examples of
such immaterial conflicts of interest include the following:
•
•
•
A director’s ownership of stock in the company;
The election of a director by a majority stockholder; or
The fact that a director will continue to serve as a director in the surviving
corporate entity.
In practice, however, a director designated by a controlling stockholder will be conflicted
in matters relating to transactions with the controlling stockholder. The grey areas tend
to arise in connection with directors who have other, less obvious ties to the controlling
stockholder – e.g., close personal friends, ex-employees, etc. Being “independent” for
stock exchange purposes does not necessarily mean that a director is not conflicted
2 See Aronson v. Lewis, 473 A.2d 805, 812 (Del. 1984).
3 See, e.g., Cede & Co. v. Technicolor (“Technicolor 1”), 634 A.2d 345, 363 (Del. 1993).
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under Delaware law. In the grey area, one has to analyze whether the director would be
unduly influenced on account of his or her relationship with the controlling stockholder.
A fact-pattern suggesting that the director was invited onto the board at the controlling
stockholder’s suggestion and/or that the director lacks the qualifications one would
expect to find for a director of the company could weigh against establishing
independence.
2. Consider the Context: When should a special committee be formed?. Once it
has been determined that a material conflict of interest exists with respect to one or
more directors, the board must decide whether to form a special committee. A general
rule of thumb is that special committees should be established in any transaction in
which a majority of the directors have a conflict of interest. A special committee may
also be formed if a board consisting of a majority of nominally independent and
disinterested directors is perceived by investors and others to be unduly influenced by a
controlling stockholder. An example of this exception is a going private transaction
involving a controlling stockholder. Specifically, the situations in which it may be prudent
to form a special committee include the following:
•
•
when the controlling stockholder obtains consideration or other material
benefits that the minority stockholders do not enjoy; and
when the controlling stockholder assumes a leading role in the sale of a
corporation and its preferences regarding key aspects of the transaction,
such as timing and form of consideration, differ from the preferences of
the minority stockholders.
Establishing a special committee in these circumstances not only helps to cure the
optics issues, but may also give the directors an advantage in any litigation resulting
from the transaction. Under Delaware law, controlling stockholder transactions are
typically subject to the entire fairness standard of review, rather than the more
deferential business judgment rule. Under the entire fairness standard of review, the
board typically needs to prove that both the process of approving the transaction and
the price of the transaction were fair to the public stockholders. However, a wellfunctioning special committee shifts the burden of proving entire fairness from the board
to the plaintiffs, thereby increasing the odds that the board will prevail (or, at least,
reducing the settlement value of the case).
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Practice Pointer: The burden of proving entire fairness will only shift from the board to
the plaintiffs if the special committee is well-functioning. 4[4] If there is a substantial
likelihood that the proposed special committee will not be able to carry out its mandate,
it should not be formed.
3. Maximize Efficiency: What practical benefits does a special committee
provide?. In addition to shifting the burden of proving entire fairness, a special
committee gives a board three significant practical benefits.
•
•
•
First, the use of a special committee can enhance efficiency. Reviewing
transactions requires a significant amount of time, attention and expertise.
It may be more efficient to assign that task to a small group of directors
rather than to engage the attention and time of all board members.
Second, a special committee may be more nimble and capable of
responding quickly to developments in a transaction due to its smaller size
and the relative ease of calling meetings and keeping the members up to
speed on issues.
Third, special committees can be very effective negotiators, especially if
their members have special expertise in the subject-matter area of the
transaction and they retain good outside advisors. In going private
transactions in particular, they tend to be well-briefed in, and dogged in
their pursuit of, their mandate to obtain the highest possible value for the
stockholders.
Practice Pointer: To capture and maximize the efficiencies of a special committee
structure, it is best to limit the size of the committee (as further described below under
Issue 5). In addition, the special committee meetings should be capable of being called
telephonically on short notice, and the quorum requirements should not require that
more than a majority of the special committee members be present.
4. Exercise Caution: What are the potential downsides of forming a special
committee?. There are some downsides to using special committees in going private
transactions. The formation of a special committee can slow down the pace of a
transaction because time must be spent identifying and recruiting independent and
disinterested members of the board and appointing legal and financial advisors.
Additionally, the financial costs associated with forming a special committee can be
4 In re Southern Peru Copper Corporation Stockholder Deriv. Litig., C.A. No. 961-CS, slip op., at 43 (Del. Ch. Oct. 14, 2011).
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considerable. Not only must the company set aside funds to compensate members of
the special committee, but the company must also pay independent financial and legal
advisors for their services.
Practice Pointer: Electing to form a special committee can be viewed as a “statement
against interest” in hindsight – i.e., as an acknowledgement that a controlling
stockholder was, in fact, conflicted, and that the resulting conflict did have the capacity
to taint the board process. If any potentially conflicted transactions had been approved
before the special committee was formed, it may be worth considering whether the
special committee’s mandate should extend to ratifying those prior approvals.
5. Recruit Wisely: Who should sit on the special committee?. The determination of
who should sit on a special committee is driven by the four Cs: Composition, Conflicts,
Competencies, and Credentials.
Composition
There are no minimum or maximum size requirements for special committees under
Delaware law. In fact, under Delaware law, a special committee may consist of only one
director. Despite the fact that a committee of one is permissible under Delaware law,
such a small committee is not advisable for two reasons. First, in practice, committees
of one attract a lot of scrutiny by the courts. Second, committees of one may not be
practical in the long run if the sole committee member ever becomes unavailable to
work on special committee matters.
Two- member special committees are also problematic. The primary difficulty in having
only two members is that both members will need to approve a particular transaction
and there is a risk of deadlock without the possibility of a tie-break. Furthermore, if one
member develops a material conflict of interest or otherwise becomes unavailable to
execute his or her duties, the remaining member of the committee will face heavy
scrutiny as a new committee of one.
Given the difficulties associated with one and two-member special committees, counsel
should recommend that the special committee consist of at least three members. In
deciding whether the size should exceed three members, counsel should consider
factors such as efficiency and quorums. Committees comprised of more than five
members may become inefficient in accomplishing tasks. Moreover, satisfying
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prescribed attendance quorums may become difficult as the number of members
increases.
Conflicts
Special committee members should be selected by disinterested and independent
members of the board. The Court considers the selection process very carefully when
deciding whether a particular transaction is fair to the corporation and its stockholders.
For example, in In re Fort Howard Corp S’holders Litig., the Court noted that the
selection of special committee members by an officer leading a management buyout
was improper. 5 The special committee members’ independence should be fully vetted
with a detailed questionnaire and, if the matter is particularly sensitive, a background
check.
Competencies
The third step in the recruitment process is the selection of members with the requisite
skills and competencies. Special committee members should possess the following
skills:
•
•
•
•
•
Oral and written communication skills, including foreign language skills if
necessary,
Analytical skills,
Decisiveness,
The ability to work with others in challenging and high pressure situations,
and
The ability to understand and carry out the mandate of the special
committee.
Credentials
Special committee members should also have appropriate educational and professional
credentials. These may include one or more of the following:
•
Advanced degrees in finance and accounting, a CPA license, and/or
relevant work experience,
5 1988 Del. Ch. LEXIS 110, at 36 (Aug. 8, 1988).
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GOING PRIVATE TRANSACTION
•
•
•
•
•
Degrees in law,
Advanced degrees in information technology and engineering for
technology companies,
Advanced degrees in science, and medical degrees for pharmaceutical
and biotech companies,
Professional experience with matters of the type the special committee is
expected to review, and
Detailed knowledge of the corporation’s business due to work experience
with the corporation itself or other businesses in similar industries.
Practice Pointer: Two factors should be taken into consideration when setting
compensation schemes for special committee members. First, compensation should be
set well in advance of a particular transaction. Second, the compensation should not be
contingent upon the outcome of that transaction. These two precautionary measures will
help ensure that compensation structures do not cast doubt on the independence of
special committee members.
6. Establish Authority: What powers should a special committee have?. The
powers of the special committee should be set forth in the resolutions that establish the
committee. Among other things, the resolutions should ensure that the special
committee has the procedural and substantive authority necessary to carry out its
mandate. The special committee should be given the following:
•
•
•
•
The authority to operate independently from the rest of the board and
management,
The authority to retain independent legal, financial, and other advisors it
deems appropriate at the corporation’s expense,
The authority to obtain information directly from management, the
company’s outside counsel, and other advisors it deems necessary to
consult, and
The authority to compensate each member of the special committee for
his or her service.
In addition to procedural authority, it is critical that the resolutions provide the special
committee with substantive authority. Specifically, the special committee should have
the following:
•
The authority to negotiate the terms of the transaction when necessary,
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•
•
•
•
•
•
The authority to supervise management in negotiating the terms and
conditions of the transaction,
The authority to consider whether the terms and conditions of the
transaction are fair to the stockholders and in the best interests of the
corporation,
The authority to decline a proposed transaction if it finds that it is not in the
best interests of the corporation or fair to the stockholders,
The authority to consider alternative arrangements,
The authority to use takeover defenses to shield the company from a
hostile bid, and
The authority to use a go-shop provision.
Practice Pointer: For a representative sample of resolutions establishing the powers of
a special committee, please see the Sample Resolutions for Forming a Special
Committee attached at the end of this article.
7. Act Effectively: What policies and procedures should a special committee
follow to be effective?. A special committee should follow the 3 Rs: Routine,
Recordkeeping, and Research.
Routine
There are no general guidelines specifying how often a special committee should meet.
Rather, the frequency with which a special committee meets is dependent upon
circumstances specific to the transaction and circumstances specific to the special
committee members. Transaction-specific circumstances include the following: the
pace of the transaction, the nature of the transaction, the complexity of the transaction,
the parties involved, and the presence of any specific regulatory issues requiring the
attention and action of the special committee. Circumstances specific to the special
committee members may include the following: the general availability of the special
committee members, the geographic location of the members, and any extenuating
circumstances that may make it difficult for a particular member to attend meetings.
Recordkeeping
The special committee should keep accurate records of all material meetings and
decisions. These records will become very important in the event of litigation.
Specifically, the special committee should compile the following:
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•
•
•
•
•
•
A record of the minutes of all meetings;
A record demonstrating that the special committee was advised by legal
counsel of its duties, responsibilities, and mandate;
A record demonstrating that the special committee had the authority to,
and did in fact, actively negotiate with the acquirer regarding all material
terms of the transaction, including price;
A record demonstrating that the special committee was aware of all
material conflicts of interest and took appropriate measures to manage
them;
A record reflecting active participation by all of the special committee
members; and
A record reflecting that the special committee members engaged in
informed and well-reasoned deliberations.
Research
Members of the special committee must also do some research to confirm that a
particular transaction is in fact fair to the company and its stockholders. Specifically, the
special committee should review market conditions and market opportunities and
consult with its outside advisors to get a view of what is customary in the market or
otherwise. In many cases, a special committee should seek a fairness opinion from an
independent financial advisor to back up its own research.
Practice Pointer:
The special committee should establish guidelines regarding
confidentiality and the safeguarding of sensitive material information. Specifically,
policies should be created to ensure that the records of the special committee are kept
confidential from other parties.
8. Vet the Advisors: Who selects financial and legal advisors and what are the
selection criteria?. The special committee should be actively engaged in the process
of selecting outside advisors and should not delegate this task to management.
Typically, the chairperson of the special committee will be involved in the selection
process, but it is also acceptable for the entire special committee to be involved.
In choosing suitable outside advisors, those involved in the selection process should
look for candidates who are qualified in their respective fields and independent. While
skill and experience are key selection criteria, it is also important to retain financial
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advisors who have no material conflicts of interest, whether actual, potential, or
perceived, with the controlling stockholder or any other party to the transaction.
Recently, the Court has raised significant concerns about the independence of financial
advisors. For example, in the 2009 case of In re John Q. Hammons Inc. S’holder Litig.,
in which an investment bank simultaneously sought roles as outside investment advisor
and underwriter of a securities offering related to the transaction, the Court emphasized
“the importance of disclosure of potential conflicts of interest of financial advisors.” 6
However, in the recent Del Monte case, in which the financial advisor, among other
transgressions, failed to disclose to the board that it had been actively trying to generate
interest in Del Monte among buyers, the Court noted that disclosure of the conflict was
necessary, but not sufficient. Rather, the Court emphasized the need for the board to
take responsibility in identifying a financial advisor’s material conflicts of interest. In Del
Monte, Vice Chancellor Laster underscored the responsibility of the board, writing that
“the buck stops with the Board.”7 Given the Court’s recent scrutiny of the independence
of financial advisors, special committees should be very conservative in this regard.
In addition to screening for actual or potential conflicts of interest, the special committee
should try to avoid creating what may be perceived as conflicts of interest. One such
perceived conflict of interest involves the compensation of outside financial advisors. To
avoid the appearance of impropriety, if possible, special committees should neither
make the compensation of the advisors contingent upon the outcome of a particular
transaction nor set excessive compensation structures.
Practice Pointer: The Court’s recent rebuke of financial advisors with material conflicts
of interest should not preclude the special committee from retaining financial advisors
who have a prior relationship with the company or advisors who have special expertise
in a particular, relevant area. In such cases, however, it is especially important to
document the special committee’s rationale for selecting a conflicted advisor and
disregarding the conflict, together with any measures the special committee intends to
take (or require the advisor to take) to minimize the potential adverse impact of the
conflict.
9. Advise Actively: What are the roles of legal and financial advisors?
The financial advisor is primarily responsible for performing valuation work, providing
strategic advice, and preparing an independent fairness opinion. The fairness opinion is
6 C.A. No. 758-CC, 2009 Del. Ch. LEXIS 174, *55 (Del. Ch. Oct. 2, 2009).
7 In re Del Monte Foods Co. S’holders Litig., C.A. No. 6027-VCL at 37 (Del. Ch. Feb. 14, 2011).
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an independent assessment by the financial advisor that the proposed transaction is fair
to both the corporation and its stockholders.
Outside counsel to a special committee also serves many functions, perhaps best
captured by the three As: Authority, Assessment, and Advising.
Authority
•
•
•
Bears responsibility for drafting the board resolutions that give the special
committee authority to carry out its mandate,
Assumes responsibility for ensuring that all special committee members fully
understand the special committee’s mandate and are able to fulfill their duties
pursuant to the mandate, and
Bears responsibility for helping the special committee obtain all powers it may
need in order to carry out its mandate.
Assessment
•
•
Assumes responsibility for assessing the terms of the company’s engagement
letter with the financial advisor. Counsel should pay particular attention to the
services the financial advisor will provide and the expected compensation for
those services, and
Assumes responsibility for assisting with the assessment of all material conflicts
of interest, whether actual, potential, or perceived, with respect to the board, the
special committee, and the financial advisor.
Advising
•
•
•
•
Bears responsibility for providing advice with respect to the size of the special
committee, the selection of special committee members, and the selection of the
financial advisor,
Bears responsibility for providing advice regarding the policies and procedures a
special committee should follow to be effective,
Bears responsibility for providing general advice and strategies related to the
proposed transaction, and
Bears responsibility for taking into consideration business and public relations
concerns.
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Practice Pointer: The special committee should be not passive when obtaining a
fairness opinion from its independent financial advisors. It is crucial that the committee
be familiar with the procedures used by the financial advisor in formulating its opinion.
Del Monte serves as a powerful reminder that the special committee must actively
supervise the financial advisor. To this end, it may be useful to include directors with
backgrounds in finance and accounting on the special committee.
10. Lessons from Southern Peru: What constitutes a well-functioning special
committee?. The Delaware Chancery Court’s recent decision in In Re Southern Peru, a
stockholder derivative lawsuit contesting Southern Peru’s acquisition of a subsidiary
owned by Southern Peru’s controlling stockholder, highlights important issues for
advisors to special committees to keep in mind. 8 In Southern Peru, the Court found that
Southern Peru’s acquisition of a subsidiary owned by its controlling stockholder, Grupo
Mexico, did not meet the exacting standard of entire fairness, despite Southern Peru’s
use of a special committee. The Court found that the special committee was not wellfunctioning, a prerequisite to shifting the burden of proving entire fairness to the plaintiff.
Southern Peru’s failure to prevail in this case, despite the existence of a special
committee, provides some useful insights as to what constitutes a well-functioning
special committee. The Court noted that Southern Peru’s special committee was not
well-functioning due to the following factors:
•
•
•
A weak and limited mandate that failed to give the special committee the
power to negotiate with the controlling stockholder or to consider other
options. The Court was concerned with the special committee’s lack of
“leverage to extract benefits for the minority.”9
The absence of arm’s-length bargaining power with the controlling
stockholder, Grupo Mexico. The Court was critical of the committee’s
deliberations, characterizing them as focused solely on ways to make the
Grupo Mexico deal work, “rather than aggressively testing the proposition
that the transaction was a good idea in the first place.”10
The failure to identify a special committee member’s potential conflict of
interest from the outset of the transaction.
8 In re Southern Peru Copper Corporation Stockholder Derivative Litigation, C.A. No. 961-CS, slip op. at 43 (Del. Ch. Oct. 14,
2011).
9 Id. at 69.
10 Id. at 70.
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•
•
•
The failure to order a bring-down fairness opinion from its financial advisor
despite the fact that the market value of the company’s common shares
increased substantially between the signing of the merger agreement and
the stockholder meeting to approve the merger. The Court criticized this
oversight as “a regrettable and important lapse.”11
The failure to maintain a comprehensive record of its negotiations and
deliberations. The Court was not able to review minutes from several of
the committee’s meetings.
The failure to keep abreast of materially changed circumstances between
the date of mailing a proxy or other disclosure document and the date of
the stockholders meeting.
Practice Pointer: Entire fairness review is a very exacting legal standard. Special
committees and their advisors would be wise to assume that every decision or move
they take will be scrutinized by a court in a stockholder derivative suit. Therefore,
special committees and their advisors should conduct the affairs of the committee with
the utmost care and caution.
Conclusion. While special committees are useful structural mechanisms for minimizing
litigation risk, there are still other risks associated with forming and advising a special
committee. Many transaction documents and internal corporate policies fail to provide
comprehensive guidance on what constitutes a well-functioning special committee and
how such a committee should be formed. Even in-house counsel and boards of
directors may not have established guidelines to address these issues. Accordingly,
advisors to special committees should consider these issues, particularly when dealing
with a going private transaction involving a controlling stockholder.
SAMPLE RESOLUTIONS FOR FORMING A SPECIAL COMMITTEE
WHEREAS, the Company has indicated that it is contemplating the possibility of
engaging in a transaction (the “Possible Transaction”) with a company code-named
__________.
WHEREAS, in light of the Possible Transaction, the Board of Directors has determined
that it is desirable and in the best interests of the Company and its stockholders that a
special committee of the Board of Directors, comprised of directors who are not officers
11 Id. at 88-93.
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or employees of the Company, be established to assist the Board of Directors in
effectively and efficiently addressing matters relating to the Possible Transaction.
RESOLVED, that pursuant to Section 141(c) of the General Corporation Law of the
State of Delaware and Article ___, Section ___ of the By-laws of the Company, the
Board of Directors hereby establishes a special committee of the Board of Directors (the
“Committee”);
FURTHER RESOLVED, that __________, __________, and __________ are
designated as the members of the Committee, with the duties and powers granted to
such Committee and the members thereof as hereinafter described;
FURTHER RESOLVED, that __________ shall serve as Chairman of the Committee;
FURTHER RESOLVED, the Committee shall have the authority to establish such rules
of order and other administrative and ministerial matters as it may determine to be
necessary or desirable to its orderly functioning;
FURTHER RESOLVED, that in recognition of their additional responsibilities each
member of the Committee shall receive a fee to be determined by the Board of
Directors, and shall be reimbursed by the Company for all reasonable costs incurred in
connection with his or her service on the Committee, including, without limitation, travel
expenses;
FURTHER RESOLVED, that in recognition of his additional responsibilities, the
Chairman of the Committee shall receive an additional fee to be determined by the
Board of Directors;
FURTHER RESOLVED, that, in order to assist the Board of Directors in effectively and
efficiently addressing matters relating to the Possible Transaction, the Committee shall
have the power and authority to (1) consider whether or not it is in the best interests of
the Company and the holders of the common stock of the Company to proceed with the
Possible Transaction and/or engage in discussions and/or negotiations relating
thereto, (2) consider and review potential alternative transactions, (3) reject the Possible
Transaction if it determines it is not fair to or otherwise not in the best interests of the
Company and the holders of the common stock of the Company, (4) consult with and/or
advise management, on behalf of the Board of Directors, in connection with discussions
and/or negotiations concerning potential terms and conditions of the Possible
Transaction, (5) consider such other matters as may be requested by the Board of
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Directors from time to time or as otherwise deemed appropriate by the Committee, and
(6) make any recommendations to the Board of Directors concerning the Possible
Transaction that the Committee deems appropriate, including recommendations with
respect to any matters requested by the Board of Directors;
FURTHER RESOLVED, that the Committee shall have the authority, at such time as it
chooses to do so, to interview, select and retain, at the Company’s expense and on
behalf of the Board of Directors and/or the Committee, such additional investment
bankers, financial advisors, attorneys, accountants or other advisors and secretarial
assistance as it may deem appropriate, including without limitation, an investment bank
to deliver a fairness opinion in connection with the Possible Transaction, and to
establish the terms of engagement of each such advisor;
FURTHER RESOLVED, that the Committee is authorized and empowered, on behalf of
the Company, to enter into such contracts providing for the retention, compensation,
reimbursement of expenses, and indemnification of such additional attorneys,
investment bankers, financial advisors, accountants or other advisors and secretarial
assistance as the Committee may deem necessary or appropriate, and that the
Company hereby is authorized and directed to pay all fees, expenses, and
disbursements as are approved by the Committee of such additional investment banks,
financial advisors, attorneys, accountants or other advisors and secretarial assistance
on presentation of statements approved by the Committee, and that the Company shall
honor all other obligations of the Company under such contracts;FURTHER
RESOLVED, that the Committee may consult with such officers or employees of the
Company, with ____________________________, special counsel for the Company,
with ____________________________, special counsel for the independent directors
of the Company, and with such other attorneys, and such investment bankers, financial
advisors, accountants, auditors or other advisors or providers of services to the
Company or its affiliates to the extent that the Committee may deem appropriate, and
that the Company hereby directs each such officer, employee and advisor to cooperate
fully with the Committee in connection with its functions pursuant to these resolutions;
FURTHER RESOLVED, that the Committee shall have full access to all records,
documents or other information in the possession of the Company or available to the
Company that the Committee may deem relevant to its duties as contemplated by these
resolutions, including being promptly informed of any contacts, proposals or offers by
any third person or entity relating to a potential alternative to the Possible Transaction,
and that each officer, employee or other person or organization subject to control by the
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Company be, and they hereby are, authorized and directed to cooperate fully with the
Committee, each member thereof, and any of their legal counsel, investment bankers,
financial advisors, consultants and agents, in providing such records or documents, or
such extracts or analyses thereof, or other information as the Committee may request;
FURTHER RESOLVED, that the Committee, and each member thereof, hereby is
authorized and empowered to do all acts as may be necessary or appropriate in its or
any member’s judgment to carry out the purpose of these resolutions;
FURTHER RESOLVED, that, in accordance with Section 145 of the General
Corporation Law of the State of Delaware, Article _______________ of the Company’s
Charter and Article ____ of the Company’s By-laws, each member of the Committee
hereby is and shall be indemnified and held harmless by the Company and its
successors and assigns to the fullest extent permitted by any applicable law for all acts
or omissions to act by them in connection with their service on the Committee, which
indemnification may not be withdrawn or modified in any manner adverse to a member
of the Committee as to any matter arising out of or relating to its consideration of a
Possible Transaction or related matters; and
FURTHER RESOLVED, that the officers of the Company hereby are authorized and
directed to take all such further action and to prepare, execute, acknowledge, file,
deliver, and record all such further documents and instruments by and on behalf of the
Company, and in its name, or otherwise, as in the judgment of any such officer shall be
necessary, appropriate, or advisable in order to fully carry out the intent and to
accomplish the execution of the purposes of the foregoing resolutions.
For more on "entire fairness," see Liability of Corporate Officers and Directors,
Chapter 14, "Liability in Takeovers, Mergers and Buyouts"
For more on "entire fairness," see "Thompson and Schwartz on Enhanced
Scrutiny and Change of Control," 2009 Emerging Issues 4084
For more on "going private," see Corporate Acquisitions and Mergers, Chapter
5E, "Tender Offers and Takeovers."
Click here for more Emerging Issues Analyses related to this Area of Law.
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About the Authors. Frank Aquila is a partner in the Sullivan & Cromwell LLP Mergers
& Acquisitions Group. He is a regular advisor to global leaders, such as Amgen,
Anheuser-Busch InBev, Avon, Diageo, International Airline Group and United Rentals.
Mr. Aquila represented InBev in its unsolicited acquisition of AnheuserBusch to form
AnheuserBusch InBev, the world’s largest brewer. Twice he has received Burton
Awards for Legal Achievement (2005 & 2010). Mr. Aquila was named a “Dealmaker of
the Year” by The American Lawyer in 2009 and received the 2010 Atlas Award as the
Global M&A Lawyer of the Year.
Melissa Sawyer is a partner in the Sullivan & Cromwell LLP Mergers & Acquisitions
Group. Ms. Sawyer is also a member of the Adjunct Faculty of Columbia Law School.
Her practice has focused on a variety of corporate, M&A and private equity matters in
the U.S. and abroad. Ms. Sawyer was featured in "The Facebook of Wall Street’s
Future" (New York Times, October 3, 2007) as one of Wall Street’s "next generation of
deal makers." She received her B.A. degree from Washington & Lee University and her
J.D. degree from the University of Virginia Law School.
Keerthika Subramanian is an associate in the Sullivan & Cromwell LLP General
Practice Group. She received her B.A. degree from Emory University and her J.D.
from Yale Law School.
Emerging Issues Analysis is the title of this LexisNexis® publication. All information provided in this publication is provided for educational purposes. For legal advice
applicable to the facts of your particular situation, you should obtain the services of a qualified attorney licensed to practice law in your state.
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