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Court Of Chancery Explains When Director May Be "Interested"

Posted In M&A

In re Answers Corporation Shareholders Litigation, C.A. 6170-VCN (April 11, 2012)

Directors who are also officers have an interest in a merger when they are to retain their jobs in the merged company.  Delaware has recognized that this interest is inevitable in many cases and is usually not enough to make that director's vote for the merger considered an interested transaction. Of course, if future employment is negotiated improperly, the director may well be "interested," particularly if he both negotiates the merger and his future employment at the same time.

But what happens if he does not do so? Here the director/officer was deemed to be an interested director who had to prove the entire fairness of the deal because he knew he was about to be fired unless the deal was done soon.  This illustrates the importance of context.

Finally, the opinion is also interesting for its review of when circumstantial evidence is enough to show the acquiror had knowledge of possible fiduciary duty breaches so as to be an aider and abettor.

Tags: M&A