January/February 1999

Featured Articles

• Building a better audit committee The board of directors' audit committee has even more responsibility than ever, considering all kinds of law, regulations, shareholders' counsel, journalists hovering about, etc. In their oversight, they must monitor corporate behavior, including such things as executive compensation and perks.

• It's a new day for ADR Business lawyers generally have had little to do with alternative dispute resolution. But the one-sentence boilerplate ADR clause is no longer enough. What are a business lawyer's professional and ethical obligations to her/his client when it comes to ADR?

• Conduct unbecoming a shareholder? What's the best way to handle hostile situations at board meetings or shareholder meetings? The author runs through the case law that applies to such issues as-as "seconds" required for motions? What about the right decorum? Can that be controlled? Unfortunately, there aren't a lot of cases and there are no generally agreed to rules.

• Calling those with fortitude How should an investor recruit an independent slate of director nominees? A dissident director is also a director who is representing the shareholders, as opposed to doing just whatever the company's management wants done. The author discusses the kind of experience this possible new director should have. What we're talking about here is a corporate activist.

• Shareholders vs. the world A merger is on the horizon. Where do the board of directors owe their allegiance? Just to the shareholders? What about those state statutes that look out for other constituencies? The author discusses the arcane world of changes in control, whether through selling, breaking up or transferring control of the company.

• It all comes down to money Some people these days hope that a company's board of directors will keep something in mind besides "the bottom line." Something like the interests of employees, suppliers, customers, communities, maybe even the state. A noble goal. But the main interest of the board is to enhance corporate profit and shareholder gain.

• Protecting the deal in an auction It's a more competitive market for control of U.S. corporations these days. What happens

to contract rights in an "auction" context? It now seems that the interests of stockholders will prevail over the interests of contract parties.

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• SECTION CALENDAR • 1996-1998 INDEX • SECTION SOUND BITES

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ABA Section of Business LawBusiness Law TodayJanuary/February 1999

Building a better audit committee

What they need, what they must do

By MARK KESSEL

Kessel is a partner at Shearman & Sterling in New York City.

The board of directors of the company you're advising has adopted golden parachutes and has taken otherunpopular actions. In an attempt to deal with shareholder criticism, the company decides that enhancing thestature of its audit committee will send the right signal and seeks your advice in tapping someone to become anew director as well as chair its audit committee.

The new member must become fully conversant with the committee's duties and make certain that he or sheand fellow directors know how to discharge them. But there is a tangled web of laws and regulations touchingon the workings of this committee in particular.

To begin with the more obvious, there are securities laws, environmental laws, labor laws, antitrust laws, theForeign Corrupt Practices Act and the Internal Revenue Code. Further complicating the oversight function of theaudit committee, today's large, geographically dispersed business organizations are dependent on electronicinformation systems that have created enormous complexities and unprecedented challenges when it comes to

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monitoring corporate behavior.

Add to that the fact that the business environment is under increased scrutiny and business practices are morelikely to be exposed to examination by outsiders, with prosecutors looking for headlines, whistleblowers lookingfor vengeance or bounty, journalists looking for corporate scalps en route to their Pulitzers, and shareholdersand the ever-present plaintiff's counsel looking to recoup lost value.

Lately, heightened public scrutiny and the emphasis on the rights of shareholders have shed light on severallapses in oversight that have resulted in poor financial performance for several corporations. Take the troubledSunbeam Corp., whose method of booking sales has been the focus of several shareholder suits. Sunbeam isprimarily accused of failing to adequately disclose to its shareholders that it had engaged in "early buy" and"bill and hold" sales promotions with retailers in 1997. The promotions enabled Sunbeam to sell $50 millionworth of seasonal items, namely barbecue grills, to retailers at bargain prices with the understanding that themerchandise would be delivered later. The shareholders contend that these promotions artificially boostedSunbeam's sales in 1997. The SEC is also investigating various accounting irregularities, some of which may beattributable to the sales promotions. Sunbeam, in the meantime, is conducting its own investigation of itsaccounting practices.

Shareholders are becoming increasingly intolerant of questionable accounting practices and restated earningsand are beginning to hold audit committees responsible. Waste Management Inc. (before its acquisition by USAWaste Services Inc.), in an effort to retain its status as a Wall Street favorite, developed increasinglyaggressive accounting methods to conceal its declining earnings. After an investigation of its accountingpractices, Waste Management wrote off $3.5 billion. Shareholders have blamed the managers, auditors and theaudit committee for failing to monitor the accounting practices.

Livent Inc., a theater production company, is also the subject of numerous shareholder class-action suitsbecause of accounting problems that will likely result in millions of dollars in reported losses and therestatement of earnings for 1996, 1997 and the first quarter of 1998. The accounting irregularities alleged inthe suits include inflating revenues, shifting expenses between reporting periods and productions, and keepingtwo sets of books. Both the Ontario Securities Commission and the SEC have launched investigations into theallegations.

The consequences of the failure of oversight can be disastrous, both for individual directors and the companiesthey serve. Even the most wary and well-intentioned director can lose his or her way in this maze of pitfallsand tiger traps. The actions of a single rogue executive or a small group of errant employees can severelycripple or even bring down a company. Is it any wonder, then, that a growing number of companies anddirectors have placed a renewed emphasis on oversight and compliance?

Directors who fail in their oversight duties are also being held personally accountable, and are incurringinestimable damage to their reputations. For example, the audit committee of Cendant Corp. released a reportin August 1998 that found that its subsidiary, CUC International, improperly used funds allocated to cover thecost of the merger last December of CUC and HFS Inc. to form Cendant.

The committee report also cited the failure of the former chairman of CUC to set the proper "tone at the top" �by creating a corporate culture that was intolerant of inaccurate financial reporting, by establishing controls andprocedures to catch such problems, and by keeping himself adequately abreast about the sources of thecompany's profits. Further, the report cited deceptive accounting methods that created approximately $500million in fictional revenue over a three-year period by primarily inflating operating income, decreasingexpenses and adjusting the balance sheet to show a greater cash balance than the company actually had.

These disclosures resulted in a steep drop in Cendant's share price and sparked a number of shareholder suits,which criticize the audit committee and corporate officers for not vigilantly following the corporation's practicesand performance. Cendant is also the target of investigations by the U.S. attorney's office in New Jersey andthe SEC. To ensure that these accounting improprieties would not occur in the future, Cendant's new chairmanimplemented an improved system of financial controls and the Cendant board selected a new audit committee.

It is well known that a properly functioning audit committee serves shareholder interests and that, acting ascorporate watchdog, it can help companies avoid a host of problems. What is less well known is that the lawplaces the committee in a front-line defensive position when it comes to protecting companies and boardsagainst damaging lawsuits.

A Delaware Chancery Court decision recently drove home the point of the importance of high-level oversight.In a case involving Caremark International, shareholders sought recovery from directors for the $250 millionpaid by the company after pleading guilty to making illegal payments to doctors. The court concluded thatdirectors could be shielded from liability if the board had taken active steps to ensure compliance with the legalrequirements governing its operations. This included setting up an internal audit plan monitored by the audit

committee, naming a senior executive as compliance officer and adopting a code of ethics. The Delawaredecision stated that even though that mechanism ultimately failed to detect and prevent the wrongdoing, thedirectors were not liable, because they had made a good-faith effort to ensure the adequacy of their corporatereporting, control and information systems.

The U.S. Sentencing Guidelines likewise emphasize the importance of a preemptive, good-faith strategy forcorporate oversight and compliance. The guidelines include provisions for organizations subject to federalcriminal prosecution and cover penalties that are assessed against businesses if they are convicted of feloniesand misdemeanors. These provisions make it extremely beneficial for a corporation to exercise due diligence inseeking to detect and prevent criminal activity within the corporation.

According to the guidelines, two factors influence the fines: the seriousness of the crime and the culpability ofthe company. On the other hand, two factors can mitigate a company's culpability: First, the company detectsthe offense and reports it to the authorities; and second, the company put an effective compliance programinto place before the crime was committed. In fact, a proactive approach when dealing with the issue ofadequate oversight by boards of directors, including the establishment of an effective audit committee, can beimportant in demonstrating the high-level oversight recommended by the guidelines.

How to ensure that an audit committee is functioning effectively and how best to direct its efforts arecomplicated tasks. The following procedures may prove helpful to companies seeking to improve their oversightand control functions.

The audit committee chairman should start by enlisting the assistance of the corporation's chief financial officerand general counsel. Outside consultants may be beneficial to survey the legal landscape, to add objectivityand to help identify benchmarks against which the audit committee can evaluate its performance. Inquiries atthis stage should be designed around a series of basic questions:

Does the board have the right people on the committee?

What are their responsibilities?

How do they fulfill those responsibilities?

Do they have the resources to do the job?

How is the committee performing?

The above issues should be examined in light of current law, standards and "best practices" of other companiessimilar in size and scope to your own. What should evolve from the team's effort is a comprehensive "PracticeGuide," detailing what actions the audit committee should take to fulfill its responsibilities. The guide shouldnot be a theoretical overview of responsibilities and actions, but a practical document, tailored to thecompany's specific needs.

When the guide is complete, the team should meet with the entire audit committee to review what thecommittee does in each practice area, and how it measures up to the standards. The chairman can then reporton the process to the board of directors. As a practical matter, the end product of this process should be adetailed description of each action with which the audit committee is charged, an evaluation of the committee'sperformance and, most important, a list of follow-up steps to be taken by the committee to improve itseffectiveness.

With a process like this in place, the audit committee, the CEO and other board members will have a muchclearer idea of how � and where � best to employ the committee, how to improve its effectiveness, and howto address recent developments that have the potential to dramatically change the landscape for directors andaudit committee members in particular.

The audit committee is first and foremost charged with the oversight of the company's financial reportingprocess and internal controls. It also serves as the primary communications link between the board, thecompany's independent auditors and the director of internal auditing. The audit committee should be composedsolely of independent directors, with the size of the committee reflecting the complexity of the company andthe responsibilities that are delegated to it. Typically, the committee has from three to five members.

It is highly recommended that at least some members have both experience and training in accountingpractices and concepts. Other important qualifications include familiarity with the company's industry, as wellas knowledge of the company's history, organization and operational policies.

Traditionally, the audit committee has been responsible for recommending which firm serves as the company'sindependent auditor and when to terminate that relationship. The committee's work with the independentauditors should encompass joint planning of the scope of the audit and joint review of the audit report and theaccompanying management letter if one is determined necessary. In addition, the outside auditors should beable to help the audit committee evaluate the adequacy of internal accounting controls and personnel, andpinpoint areas of improvement in the corporation's accounting practices and internal controls.

In addition to working with the outside auditors, the committee must keep abreast of any important newpronouncements from the accounting profession and other regulatory bodies that may have an impact on thecompany's accounting policies. In proposed material acquisitions, it is the committee's job to determinewhether any accounting or financial issues are raised. And it falls to the committee to consider whether specialanalytical work needs to be undertaken with respect to reserves to cover contingent obligations such as taxes,environmental liabilities, etc.

But all of the foregoing are not enough to ensure effectiveness if an audit committee's knowledge and trainingare out of date. Far too many compliance plans have been on "cruise control" for decades, even as the hazardscompanies face have increased exponentially. Today's committee must be thoroughly conversant withincreasingly complex and constantly changing financial, tax, audit and accounting issues. The SEC recentlyadvised that asking tough questions and conducting detailed discussions with management on a frequent basisare critical to improving the performance of audit committees. This may seem obvious enough, but whenofficers of a company throw up their hands in dismay and blame the company's derivatives fiasco on theirbankers � then it's time for some serious self-examination in the board and committee rooms.

In the late 20th century, moreover, compliance and control have taken on meanings that extend far beyondthe traditional "financial" preserve. As that territory grows, so too might the mandate of the audit committee.In compliance, for example, the audit committee (unless another committee is charged with the responsibility)should review the company's operations and determine whether management has established and maintainseffective programs pertaining, to the extent relevant, to the following:

antitrust laws and policies

conflicts of interest

sensitive payments and political contributions

insider trading

the use or misuse of corporate funds and confidential information

environmental practices

employment practices, including discrimination and sexual harassment.

Other areas where the audit committee is called on to stand in judgment include the review of managementremuneration, especially perquisites, and the review of settlements, claims, litigation and lawsuits as theyaffect financial statements.

If entire new areas of oversight have opened up for the committee in the compliance arena, so too have theymultiplied with respect to the control function, especially with regard to technology issues. The committeeshould carefully consider special investigations or regular reviews of the controls surrounding electronic dataprocessing and computer security. As the importance of the information in computers grows, so do theunauthorized ways of getting at it. And so do the nasty consequences of not properly protecting it.

Another area in the computer realm that is demanding increased committee attention is disaster recovery. Withthe very real threats of both international and domestic terrorism, floods in the Midwest, ice storms in theNorth, earthquakes in California, and so on, it is entirely possible that a manager might suddenly have toannounce that the company has lost its ability to do business for a couple of months or has missed out on amulti-billion dollar order because of a shutdown at some critical facility or juncture. The audit committeeshould satisfy itself that adequate disaster-recovery programs are in place with regard to the storage andretrieval of electronic information critical to the company's operations. The committee should also review thecompany's insurance programs to determine whether enough protection is in place for the business and itsassets.

As if these duties weren't enough, the coming years promise to further complicate matters for the alreadyburdened audit committee. In the years ahead, new issues and unprecedented challenges will conspire to keepthe committee busy. In particular:

The Year 2000: One of the most important and potentially damaging issues on the horizon as we approachthe new millennium, is, quite literally, the 2000 problem. It is now widely known that for many corporations,

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the upcoming millennium change will pose important information-processing challenges. Recently, the SECstated that the anticipated costs, problems and uncertainties linked to the millennium bug require appropriatedisclosure in the relevant SEC filings. The accounting profession also considered the issue, and determinedthat these costs must be charged as expenses as they are incurred. Many auditors offer a variety of servicesto help their clients face the Y2K challenge. The SEC warned that in some cases, auditors' independence maybe threatened as a result of the provision of such nonaudit services. In these cases, watchdog duty falls to theaudit committee.

Independence: With the creation of the Independence Standards Board, the SEC made clear its concernsabout the increasing diversification in the accounting industry. Even if ultimately auditors bear most of theconsequences, audit committees should be careful to determine whether, in light of the most recentdevelopments in accounting standards, the amount of nonaudit services the company's auditors provideimpairs their independence. With the growth of the multi-disciplinary professional services firms, in particular,there is a danger that the auditors, if they provide consulting or legal services in addition to auditing, maycome to see themselves as business partners to the company and compromise their independence.

Increased focus on derivatives: The SEC recently adopted new rules that clarify and expand existingdisclosure requirements for derivative financial instruments. The amendments require enhanced disclosure ofaccounting policies for derivatives in the footnotes to financial statements. In addition, qualitative andquantitative information about market risk inherent in market risk-sensitive instruments must now bedisclosed.

Increased focus on aggressive accounting: The chairman of the SEC in September 1998 said that theagency will scrutinize aggressive accounting practices used by companies to enhance earnings. Among themore controversial accounting discussions he highlighted were the so-called "bag bath" restructuring charge;creative acquisition accounting related to writeoffs of research and development; "cookie jar" reserves thatsquirrel away accruals to be used in future periods; premature revenue recognition; and abuse of the"materiality" accounting standard to record errors under a defined-percentage ceiling.

These are but a few of today's pressing issues, and new issues will always spring up. Another complication isthat since board duties have become so onerous, there is a shortage of good directors to choose from, withmany qualified candidates simply refusing to serve. Further contributing to that reluctance is a concomitantincrease in director liability. However, conscientious directors, if they do their jobs well, should have little tofear on the liability front. Given the pace of change, the audit committee should complete a rigorous self-assessment periodically to assist in this endeavor. This review should be discussed privately in committee andthen reported to the full board of directors. A well-tailored self-assessment guide is an excellent tool forconducting the review, and will yield consistent and comparable data on a continuing basis.

Reactions to the Delaware decision in Caremark have ranged from jubilation in the boardroom to skepticism inshareholder circles that the court may be setting a low standard for directors and encouraging the creation ofhollow and toothless compliance systems. Both are missing the larger point that the case is bringing a renewedspotlight to bear on compliance issues and standards.

Has the time come for a renewed emphasis on compliance and control? Just ask the former shareholders ofBarings about how a firm with a net worth of approximately $500 million at the end of 1994 became insolventby the end of February 1995 � before its 1994 annual financial statements were completed. The collapseresulted from the activities of one rogue derivatives trader in Singapore whose investments ultimately lostabout $1.4 billion, which decimated Barings' capital and forced the firm to declare bankruptcy. This is a clearexample that inadequate internal controls coupled with reliance on annual audits and reporting alone is a recipefor disaster.

Companies now have a weapon in their arsenal if they elect to use it. They can buy an extra degree ofprotection for board members and for the company through a judicious use of the audit committee. It will comeas welcome news to all stakeholders in the corporation that a court has given companies a compelling reasonto strengthen their compliance systems.

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myABA | Log OutWelcome, Graham

ABA Section of Business LawBusiness Law TodayJanuary/February 1999

It's a new day for ADR

From boilerplate to professional responsibility

By DONALD LEE ROME Don't Miss . . .Some Reading Matter

The Section's Committee

Rome is senior counsel at Robinson & Cole in Hartford, Conn.

Your client, a prospective licensee in a business transaction, asks you to review a proposed license agreementprepared by the licensor. The parties have equal bargaining power. The draft has an arbitration clause — onesentence, to the effect that any and all disputes will be resolved by binding arbitration according to XYZ rules.The client wants to know how arbitration works and what the rules provide.

ADR ISSUE COMING SOONIn a group of articles coming in the March-April issue of Business Law Today, you will have the opportunity tolearn much more about ADR. In the meantime, write to AAA and CPR, both located in New York City, for their

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respective publications lists. Go to their Web sites and to the ABA Dispute Resolution Section Web site. Alsowrite or e-mail the ABA in Chicago to join the Business Law Section Dispute Resolution Committee, and watchfor ADR programs at the Business Law Spring Meeting in San Francisco.

The client asks other questions on matters that could affect the outcome in an arbitration. Can you givecompetent advice to enable her to decide whether to agree to such a clause at all, and what modificationsshould be negotiated if it is to remain in the contract? What are your duties of consultation in this situation toenable the client to make informed decisions?

The development of professional obligations to clients, as applied to dispute resolution in transactional workand when disputes arise, is new for most business lawyers. The focus of this article is to encourage businesslawyers to develop Alternative Dispute Resolution (ADR) expertise, not only to avoid professional liabilityproblems, but also as a real opportunity to provide value-added advice and analysis in client representationand consultation relating to business disputes.

Malpractice, professional negligence, ethical violations and client claims of poor quality service relating to ADRgenerally have not been on the radar screens of business lawyers when structuring business transactions oreven when inserting ADR clauses into agreements to provide for one or more ADR mechanisms. ADR generallyhas appeared as an untested idea with respect to mediation, mini-trials and other newer ADR techniques. Akind of experiment. Binding arbitration, on the other hand, has been known as an established structure,activated by a time-honored universally accepted one-sentence boilerplate contract clause, handled bylitigators.

In its remarkable brevity, this one-size-fits-all clause provides for nonappealable, binding arbitration followingrules incorporated by reference, but largely unknown to business lawyer and client alike in how they work.

Binding arbitration, as many lawyers and business people view it, carries significant negative images (poorquality arbitrators, "split-the-baby" results, unexplained awards, unanticipated remedies, to mention a few)based on actual client experience, anecdotal evidence, surveys taken of lawyers and clients, and frequentcritical writings about the subject. Yet there has been little pressure — until recently — on business lawyers tobecome activists in drafting arbitration clauses designed to reduce and eliminate known problems in the arbitralprocess, as well as provide clients with more control over the arbitration, both process and outcome. But it canbe done.

Thus, ADR, whether in the form of arbitration, mediation or any of the other mechanisms, has not generallybeen viewed by business lawyers as requiring special expertise to satisfy professional-responsibility obligations.ADR has not presented the business lawyer with a package of client-related challenges to worry about. Whynow?

SOME READING MATTER

You might be thinking: What's the big deal?

There may be some who need a little prodding to recognize the danger. Not a problem. Much has been writtenabout existing professional obligations relating to ADR. One excellent source is, "Should an Attorney beRequired to Advise a Client of ADR Options?: Some Observations," by Marshall J. Breger, Columbus School ofLaw, Catholic University of America, was prepared June 16, 1998 as a discussion paper for the ABA DisputeResolution Section August 1998 meeting in Toronto. It was part of materials entitled "New Standards andEthics for ADR Lawyering? The Challenge of Representing Clients in Negotiation, Mediation and Other LessAdversarial Settings."

The paper is comprehensive, with numerous citations to the ABA Model Rules of Professional Conduct, Rules ofProfessional Conduct of many states, opinions of state committees on professional and judicial ethics, courtcases in numerous jurisdictions, state statutes and numerous articles dealing specifically with these issues.

A critical issue regarding business-lawyer awareness of professional responsibility with respect to ADR appearsto be that, within the full spectrum of options offered by ADR, business lawyers have not perceived mediation,mini-trials and other nonarbitration ADR mechanisms as the practice of law, and, therefore, not subject toprofessional-responsibility obligations. As to binding arbitration, it appears to have been treated by businesslawyers (but never articulated as such) as professional safe-harbor territory, not in the mainstream of lawpractice.

A reasonable basis for this attitude is probably the widespread and accepted use of the traditional one-size-fits-all American Arbitration Association (AAA) arbitration clause with its incorporation of standard rules

promulgated nationally by a well-known, responsible and respected independent organization. The clause andthe rules were the norm.

Litigators, on the other hand, have seen arbitration as simply another form of litigation. For the trial lawyers,the well-established process of binding arbitration has been in the legal mainstream for many years, with itslarge body of case law and a federal and state statutory base. Further, it is generally the trial lawyer whoactually represents clients in arbitration, not often the business lawyer.

The result? Business lawyers over the decades have generally had little to do with ADR. Beware. The ADRclimate has changed for business lawyers. Read on.

Business lawyers normally deal with transactions, provide advice and counsel on legal issues, negotiate forclients and prepare documents. When business disputes arise, the business lawyer frequently will reviewdocuments, provide analysis and advice, become involved in negotiations, and may prepare settlementdocuments, unless the dispute goes into a litigation or arbitration mode.

A combination of factors recently has created the possibility that the business lawyer may be seen by clients,colleagues, courts, grievance authorities and ethics committees as failing to meet professional obligations tothe client in rendering legal services when dispute resolution is involved. What has happened to bring businesslawyers from the freedom and safety provided by simple, standardized, universally accepted professionalbehavior patterns based on well-known and established practices relating to binding arbitration, to thepotential for client dissatisfaction, censure or liability in the current world of ADR — a world with a wide rangeof dispute resolution options that also includes the traditional option of binding arbitration?

In answering this question, it's helpful to review current business and legal ADR realities generally, as well asproblems and issues arising specifically out of binding arbitration. This review is of particular importance tobusiness lawyers in the context of current business and professional ADR trends and norms, giving rise, as theywill, to duties, obligations and opportunities.

In analyzing the ADR landscape and professional responsibility for business lawyers regarding its use, we'll lookat current ADR realities for lawyers and clients with two perspectives. Let's call the first one, "Full-SpectrumADR Current Realities." This approach lists current realities of ADR in the context of a wide spectrum of optionsand mechanisms available for conflict management and dispute resolution as alternatives to classic litigation.

The second, and narrower, perspective we'll call, "Binding Arbitration Current Realities." This approach will treatof only one of the full spectrum of ADR methods — binding arbitration — the proceeding where arbitratorsprovide final and binding nonappealable decisions, enforceable by courts.

Both the "Full-Spectrum ADR Current Realities" and "Binding Arbitration Current Realities" perspectives reflectADR as currently observed and experienced by the business and legal communities, with an eye for how thesecurrent realities can affect the professional obligations of business lawyers in consulting with their clients —when contract drafting and when advising clients once a dispute arises — whether or not a pre-dispute ADRagreement exists in the relevant contracts.

Full-Spectrum ADR Current Realities Perspective —

1. ADR is specifically the subject of or can be interpreted to be included in statutes, rules of professionalconduct, ethics opinions and case law, and is now prevalent in law school education programs.

2. ADR as a practice area for lawyers is written about in widely circulated current publications of the AmericanArbitration Association (AAA), the CPR Institute for Dispute Resolution (CPR), and the American Bar Association,all lawyer-driven, and in countless legal journals, periodicals and trade publications. It has been the subject ofseminar materials for programs sponsored by state and local bar associations, law firm newsletters and variousADR specialty law reviews. Case-law developments are reported and highlighted.

3. ADR is part of many federal and state court programs for case disposition following court-issued rules andprocedures as well as informally. Training programs for those involved are required, with published rules andguidelines in most jurisdictions.

4. ADR is being structured and widely used by the corporate business community in almost every industry, bythe Justice Department, federal and state agencies, and many nonprofit organizations.

5. Both the AAA and CPR, on a national level, along with many other well-known ADR service providers, conductvery active industry-oriented programs to provide ADR services directly to major corporations. These servicesinclude not only specialized panels of neutrals, but also in-house ADR education and training.

6. Lawyers, clients, judges and others are currently exposed to ADR through well-known entities that provide (a)panels of arbitrators, mediators and other neutrals, (b)�rules that govern the mediation, arbitration or otherADR mechanism, (c) widely circulated publications with suggested contract and post-dispute clauses withchecklists of optional clause provisions to meet general and specialized user needs, (d) industry-oriented clausesand rules, and (e) specialty expertise-oriented panels of neutrals.

7. ABA, state and local bar associations, law schools, the courts and the federal government actively promotethe use of ADR for lawyers. ADR is marketed directly to business entities by national organizations providingneutrals such as AAA and CPR, and by trade associations.

8. Lawyers have been inundated with continuing legal education programs and publications designed to trainlawyers in their representational capacity for mediation and arbitration.

9. Problems with and benefits from the use of various ADR programs, systems, techniques and mechanisms areroutinely the subject of articles in the business and law-oriented media.

10. Mandatory ADR in health care, employment, securities and other consumer-oriented situations has been thesubject of important recent judicial review, and has received widespread professional and media commentary onimportant legal, business and fairness issues. Major initiatives in these areas have been explored bygovernmental agencies, legislative bodies, private-sector business entities and bar associations. Some changesare already in place, with significant publicity addressed to business, consumer, governmental and legalaudiences.

Binding Arbitration Current Realities Perspective —

1. Both AAA and CPR have promulgated and widely circulated to the legal and business communities booklets toencourage those drafting binding arbitration clauses to custom draft such clauses to the needs and desires of theclient; drafting checklists and model optional provisions are included. AAA and CPR are two of the most widelyknown and respected organizations in the ADR area, and clearly can be viewed as setting ADR professionalstandards and norms.

2. Widespread and historic unhappiness with binding arbitration by business people and business lawyers hasbeen based in part on (a) unqualified arbitrators (b) "split-the-baby" awards rather than a result based onapplicable law, (c) excessive cost because of protracted discovery, (d) denial of discovery, (e) lack of anexplanation of the basis for an award, (f) remedies beyond what the parties expected, albeit permitted byapplicable rules, (g) absence of appellate rights, and (h) overly broad interpretation by the arbitrator of the"dispute or controversy" to be decided.

3. The AAA, CPR and other ADR providers have issued comprehensive publications on national educationalprograms on arbitration, court decisions interpreting arbitration clauses, the development of industry-orientedand other specialized arbitration clauses and rules and many other sources of information about arbitration. It isnow generally known that, with some exceptions, custom-drafted, binding-arbitration clause provisions can (a)overrule standard AAA, CPR or other incorporated rules, and (b) can substantially reduce or eliminate the majorproblems complained of by lawyers and clients regarding binding arbitration, and will be enforced by the courts.

4. It is no longer unusual today to see binding arbitration clauses that specifically provide for:1. how the arbitrator will be selected,

2. the qualifications of the arbitrator,

3. venues for hearings,

4. applicable governing law,

5. form of decision,

6. limitation on remedies,

7. preservation of certain litigation and other rights,

8. limitations as to which disputes are subject to the clause,

9. discovery parameters,

10. damage limitations,

11. time frames for the process,

12. appellate rights to the extent permissible under applicable law, and

13. many other important outcome-influencing provisions.

5. The most recent Report of the TriBar Opinion Committee, "Third-Party 'Closing' Opinions," 53 Bus. Law. 591(1998) at page 630, paragraph 3.6, provides that an arbitration provision in an agreement constitutes an"undertaking," concerning the forum for resolution of disputes. Thus, the report states that the remedies opinioncovers arbitration provisions and must include appropriate exceptions if the opinion preparers are unable toconclude that the arbitration provision will be given effect in all respects.

6. Binding arbitration has a well-developed common law, dealing with such matters as injunctions, punitivedamages, confidentiality, scope of arbitration, grounds for setting awards aside, issues relating to whetherprovisions for appeal are enforceable, unfairness, limitations on authority of arbitrators, discovery and manyother matters relevant to lawyers and clients in evaluating the use of ADR.

What do these two perspectives on ADR suggest to business lawyers, regarding professional obligations?

THE SECTION'S COMMITTEE

It is the hope of the leadership of the Business Law Section Dispute Resolution Committee that all other Sectioncommittees will see our committee as a resource to assist in all aspects of ADR education for the Section. Wewould like every other BLS committee to have at least one liaison as a member of the Dispute ResolutionCommittee.

Please communicate with Donald Lee Rome, co-chair of the Dispute Resolution Committee by e-mail atdrome@rc.com, to join the committee and talk about suggestions and ideas. We are especially interested incorporate counsel members to further our goal of formulating programs that will be of particular interest tocorporate law departments as well as to the firms working with them in ADR matters.

It seems clear that the client seeking or presented with a binding-arbitration provision in a draft contractshould be advised by counsel that many drafting options are available and enforceable. Such options can:

provide greater predictability in the proceeding,

control costs,

limit remedies to those reasonably anticipated by the parties,

require a decision to follow applicable law,

establish qualifications for the arbitrator(s) and

significantly affect the outcome for the client.

It is obvious that there is now a higher level of professional responsibility for the lawyer asked to draft abinding arbitration clause or review the draft of another than existed in decades gone. The short-formboilerplate arbitration clause should no longer be considered an acceptable professional-responsibility safeharbor. If used, its operation and ramifications must be fully explained to the client in the context of theclient's business needs.

It is reasonable to expect that if a client is considering an arbitration clause in a transaction, or is obliged to doso because of other parties, counsel should explore with the client the types of disputes likely to occur, whatwill happen if the clause is invoked as to various types of disputes, whose rules should be incorporated, andother business and legally oriented items.

Such a discussion should lead to the conclusion either that the client does not want arbitration at all, or willhave it only if a tailor-made arbitration clause is drafted that fits the client's needs. In that case, a neutralservice provider with acceptable rules should be selected who will produce a qualified arbitrator.

Thus, business lawyers should at the very least know as much about binding arbitration and its workings asthey do about contract clauses dealing with potential environmental liability, indemnification, insurance, taxes,Y2K compliance, noncompetition restrictions, financial reporting, opinion letter requirements, and all the otherspecialized but widely used clauses in business-transaction documentation.

The "Full-Spectrum ADR Current Realities" perspective raises broader issues than the "Binding ArbitrationCurrent Realities" perspective regarding professional responsibility for the business lawyer. Here are somequestions and issues for the business lawyer advising a client in a transaction or at a time when a disputearises:

Is the business lawyer obligated to advise the client of the various ADR options that could become an

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enforceable part of the deal documentation?

Must the lawyer explain the differences and workings of the various ADR options, and review with the clientapplicable rules (AAA, CPR, etc.) that would be incorporated into an ADR agreement?

Is the lawyer obligated to review with the client available options for the custom tailoring of an ADR clause inorder for the client to decide whether or not to use one?

Should the standard, boilerplate, one-sentence binding-arbitration clause ever be used without full discussionwith the client of its impact, of available options and a full review of the incorporated rules?

Should a business lawyer review any proposed binding arbitration clause with a litigation lawyer, if thebusiness lawyer does not have litigation experience?

What due diligence relating to the client's business and legal needs should be undertaken before any mediationor arbitration agreement is agreed to?

What statutes, rules of professional conduct, ethical rules, standards of negligence and case law apply to anevaluation of the questions and issues raised?

Perhaps the most practical reaction to the questions and issues raised is to say that a failure on the part ofbusiness lawyers to see their role in providing competent advice to clients with respect to dispute resolutionoptions would be as though the lawyers decided when environmental laws came into the legal mainstream atboth the federal and state level that they did not have the obligation to advise clients of potential liability andto draft appropriate environmental protective provisions in contracts. Business lawyers never questioned theneed to learn about environmental issues, as they are now learning about Y2K, and so it should be with ADR.It is good lawyering, and it is also good business.

Business lawyers know their client's business transactions, operations and problems. They are in the bestposition to work with the client to evaluate the pros and cons of various ADR options. That is frequentlyrequired, even when the client would rather not consider an ADR clause, because other parties are seeking ADRclauses in the deal documentation.

Thus, one could say it is unnecessary to split hairs to determine whether one section or another of theapplicable Rules of Professional Conduct, or of court rules, or state statutes, or ethics committee opinionscreates specific ADR-oriented professional obligations. It is simply common sense to add ADR expertise to thelist of subject matter areas that competent business lawyers must know about to advise clients in a mannersufficient to meet ethical obligations. It is an opportunity to demonstrate expertise, bring value to a client, andspecifically in the case of binding arbitration — still very much used — to avoid client disappointments throughinformed consultation and custom drafting.

It should be obvious that existing professional obligations of lawyers to their clients apply to ADR consultation.ADR options, practices, techniques, mechanisms and procedures are now in the mainstream of law practice forbusiness lawyers. ABA, AAA, CPR, the federal government, state laws, corporate America, state barassociations, trade associations, judges, and, yes, law firms themselves, have pushed ADR into the mainstreamof law practice and client awareness.

What to do now? Learn all you can about ADR options and how they work. You don't have to like it — just learnabout it. You don't have to sell it — just understand it. You may have to answer questions about ADR thatclients will ask, draft ADR provisions, negotiate an ADR clause, explain the incorporated rules, and know whento discuss the whole matter with a litigator in your firm or company. Most important, you may have theprofessional obligation to discuss ADR options with your client whenever a dispute arises and you are consultedabout the dispute. Your client may reject all ADR options, but it should be a knowing rejection.

There is something else. Develop credible techniques to discuss ADR options and issues with your client — notdefensively, or purely out of a sense of obligation, but on a business-decision level. See the client as a partnerin the discussion, in strategy analysis, in the entire decision-making process. Clients will be receptive to activeinvolvement in the process once they know that real business-related legal issues are to be discussed.

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ABA Section of Business LawBusiness Law TodayJanuary/February 1999

Conduct unbecoming a stockholder?

Only a few cases guide the governance of directors' and stockholders' meetings

By ERIC G. ORLINSKY Don't Miss . . .A Section subcommittee works on the issues

Pennsylvania corporations -- a bad investment?

Orlinsky practices corporate and securities law with the Baltimore office of Saul, Ewing, Remick & Saul, LLP andis the chair of a subcommittee of the Corporate Governance Committee of the Business Law Section that dealswith issues surrounding the conduct of directors' and stockholders' meetings. The views expressed in thisarticle are those of the author and do not necessarily reflect the views of his firm, the ABA or the BLSsubcommittee mentioned above.

In the early '90s, as a publicly held Baltimore bank (Bank) prepared for its annual stockholders' meeting, awell-organized group of dissidents led by a prominent Baltimore businessman appeared poised to gain controlof the Bank from existing management.

With the economy in recession and the Bank losing money, the Bank's president, who was also responsible for

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chairing its stockholders' meetings, was expected to bear the brunt of stockholder discontent. As the meetingprogressed, the president, on the defensive and fighting for his professional life, used the powers of the chairunfairly to silence the voices of the dissident stockholders and thwart the will of the majority in order to keepexisting management in control. Only after a lengthy and expensive court battle did the dissidents prevail.

In Pennsylvania, in the mid '90s, family discord at a public, but mostly family held, food company (Food Co.)boiled over at its directors' and stockholders' meetings. The "stockholder" family members attempted to havethe president and chairman of the board, another family member, contractually agree in advance as to how hewould vote on certain issues at directors' meetings. Directors opposed corporate decisions only because theywere proposed by the "management" side of the family and not the "stockholder" side or vice versa. One"stockholder" family member attempted to usurp control over the conduct of the directors' meetings from hisbrother, the chairman of the board.

"Stockholder"-elected directors openly chastised Food Co. executives at a directors' meeting. Heated exchangesoften occurred and valuable company time was often wasted arguing over procedural matters, such as whetherthe corporation's lawyer should be permitted to be present at the board meetings and whether a directorneeded a second to a motion before the board could vote on or discuss a matter. Often nothing wasaccomplished.

Ultimately, the "management" family members removed the "stockholder" family members from the board at aparticularly bitter and contentious stockholders' meeting.

Recently, a large public railroad (Railroad) had difficulty controlling a stockholder who was intent on disruptingthe conduct of the Railroad's stockholders meetings and forcing the Railroad to spend a disproportionateamount of meeting time discussing his own agenda. By doing so, that stockholder unfairly monopolized theRailroad's time and delayed the consideration of more pressing issues. The stockholder even created a Web siteto spread rumors about the Railroad and gossip about its management.

These difficult or hostile corporate meeting situations, and many others like them across the country,frequently raise questions with few answers in corporate governance practice. Although occasional cases dealwith the conduct of directors' and stockholders' meetings, there are rarely statutes addressing proceduralaspects of corporate meetings.

So what are some frequently asked corporate-governance questions?

A SECTION SUBCOMMITTEE WORKS ON THE ISSUES

The absence of a workable set of guidelines or principles by which to conduct stockholders' meetings iscurrently the subject of a Business Law Section project. This project might help to settle many of the issuesraised in this article. The Subcommittee on the Conduct of Directors' and Stockholders' Meetings was formed inApril of 1997 as a subcommittee of the Corporate Governance Committee of the Business Law Section.

The principal mission of the subcommittee is to draft guidelines for the conduct of stockholders' meetings thatare specifically tailored to deal with the unique nature of stockholders' meetings, yet are simple enough thatthey could be universally understood by stockholders, two things Roberts' Rules do not accomplish.

This subcommittee hopes to provide the collective wisdom of lawyers who frequently deal with issuessurrounding the conduct of directors' and stockholders' meetings to answer many frequently asked corporategovernance questions.

The subcommittee envisions that the proposed guidelines will fill an existing void in corporate governance andserve as a useful tool for corporations and lawyers in conducting stockholders' meetings. It is thesubcommittee's hope that the guidelines will ultimately serve to prevent litigation over the conduct of suchmeetings, particularly meetings at which there are two or more hostile factions.

The subcommittee has completed a draft of the Guidelines, which has been delivered to the CorporateGovernance Committee for review and comment. It is anticipated, if approved by the committee and theSection, that these Guidelines will be published by the Section.

Members of the Business Law Section who are interested in seeing copies of the draft guidelines can obtainthem by writing to Eric Orlinsky c/o Saul, Ewing, Remick & Saul, LLP, 100 South Charles Street, Baltimore, MD,21201. The subcommittee welcomes additional members or comments on the draft guidelines. Any membershipinterest or comments should also be directed to the above address.

� Eric G. Orlinsky

1. What rules or guidelines should govern the conduct of directors at directors' meetings orstockholders at stockholders' meetings?

In the Bank situation, having a standard set of rules to govern the conduct of stockholders meetings, whichwere adopted in advance and were uniformly applied from meeting to meeting, might have helped to ensure afair meeting and may have avoided litigation. No set of uniform rules, however, exists today.

Commentators uniformly explain that rules of parliamentary procedure, such as Roberts' Rules of Order, shouldnot govern the conduct of stockholders' and directors' meetings. These commentators, however, suggest noalternative. Instead, the only direction they give is that the chair is obligated to conduct stockholders' meetingsin a manner that is fair to the stockholders. See, for example, Young v. Jebbett, 211 N.Y.S. 61 (N.Y. Sup. Ct.1925).

Roberts' Rules are viewed as inappropriate for several reasons. First, Roberts' and other rules of parliamentaryprocedure are so complicated that a typical stockholder is unlikely to understand, or become well versed in,their operation. Second, in order to run stockholders' meetings properly with parliamentary rules, corporationswould be required to hire parliamentarians.

Finally, and most important, Roberts' Rules were designed for deliberative assemblies in which each memberhas an equal vote. As a consequence, Roberts' Rules are not well suited to stockholders' meetings where eachperson's opinion or vote has a different weight depending on the number of shares that person owns.Moreover, Roberts' Rules are especially not well suited to situations in which management has already solicitedproxies sufficient to control the outcome of all decisions being made at the meeting.

2. Can directors contractually agree in advance of a board meeting how to vote on a particularmatter?

Although the family members in the Food Co. situation believed that a contractual arrangement on boardvoting would solve many family issues, lawyers and commentators generally conclude that it is a breach of adirector's fiduciary duty to agree in advance of a meeting how that director will vote on a certain issue. Thereappear to be no cases on this issue.

There is, however, ample support for the proposition that each director owes a fiduciary duty to thecorporation, and that that duty includes the obligation to make a fully informed decision. Thus, each directormust vote on corporate decisions based on the facts and circumstances as they exist at the time the decision ismade. While a director may believe that a particular decision is in the best interests of the corporation at thetime he or she enters into an agreement, the facts or circumstances on which that director's judgment is basedmay change between the time of the agreement and the time the director is called on to vote on the matter.

3. Can directors vote by proxy?

Like contractual ageements on voting, there appears to be no case law on this issue. This question is, however,one of the few on which there appears to be a consensus. Commentators and lawyers generally agree thatdirectors should not be permitted to vote by proxy. See 1 R. Franklin Balotti and Jesse A. Finkelstein, TheDelaware Law of Corporations and Business Organizations,�4.2 E (1997 Supp.); James J. Hanks Jr., MarylandCorporation Law,�6.12 (1994-1 Supp.). Directors' proxies are presumed to be invalid and should not beaccepted.

Again, each director has an obligation to make a fully informed decision. Consequently, a director cannotdelegate his or her voting power, even to another director, and adequately fulfill that duty. Each director mustbe present at the meeting to hear and consider management presentations and the views of the otherdirectors.

4. Does a director have a right to have his or her lawyer or the corporation's lawyer present at adirectors' meeting?

Another issue hotly fought over in the Food Co. situation was the attendance of lawyers at directors' meetings.This is among the few propositions for which there is some, albeit scant, case law. At least one court has statedthat the general rule is that directors are entitled, absent unique or extreme circumstances, to have counselpresent at board meetings. See Salama - Dindings Plantations Ltd. v. Durham, 216 F. Supp. 104, 115 (S.D.Ohio 1963). Ironically, under the somewhat unique circumstances of Salama - Dindings, a bylaw provisionrestricting lawyers from attending was upheld. At least one commentator, however, has suggested that thechair or the directors as a group may exclude others from attending, and that this extends to the personal

lawyers of the directors. R. Franklin Balotti and Jesse A. Finkelstein, The Delaware Law of Corporations andBusiness Organizations, 4.2 (1997 Supp.).

5. Does a stockholder have the right to have his or her lawyer present at a stockholders' meeting?Does the chair of the stockholders' meeting have the right to have corporate counsel present at thestockholders' meeting?

Contrary to the Salama - Dindings case, it is generally accepted by lawyers and commentators that onlystockholders and their proxies are permitted to attend stockholders' meetings. It is also generally accepted thatthis rule may be altered by the establishment of a different rule, in each case, in advance of the meeting by theboard of directors or the chair, or by a vote of the stockholders at the meeting. Unlike directors' meetings, thisquestion rarely presents practical problems because the stockholder can give his or her lawyer a proxy for oneor more shares. Thus, the lawyer, by virtue of being a proxy holder, is assured of being permitted to attend themeeting.

Interestingly, the general practice is for corporations to have corporate counsel present at stockholders'meetings to advise the chair as to the legality of certain issues raised and the conduct of the meeting. Whilethere is no theoretical distinction between counsel to the corporation and counsel to a particular stockholder,counsel to the corporation is not typically given a proxy to assure his or her attendance or otherwise requiredto qualify as a permitted attendee. Rather, it seems blindly accepted that corporate counsel be permitted toattend. There are apparently no cases in which this practice has ever been challenged.

6. Is a second required to a motion at a directors' meeting or at a stockholders' meeting? Is asecond required at a stockholders' meeting if the stockholder making the motion has the right tovote 51 percent of the shares?

Two more issues raised in the Food Co. situation were (i) whether seconds were required at a directors'meeting and (ii) whether the president and chairman of the board, who controlled 51 percent of the votingcommon stock was required to obtain a second for the motions he proposed at the stockholders' meetings (inmany cases he was the only one who supported these motions).

The second is a mechanism developed by parliamentarians to ensure that more than one member of a largegroup is interested in considering a matter before the entire group is required to consider it. The second is,therefore, an efficiency or time-saving mechanism. Parliamentary procedure is, however, not applicable to andshould not be used for directors' and stockholders' meetings. Nonetheless, many lawyers and participants instockholders' meetings continue to require and obtain seconds to motions. This practice, which has carried overfrom our common experience with attending other types of meetings at which parliamentary procedure mayhave been applicable, is, however, not appropriate for directors' or stockholders' meetings.

Even assuming, for argument's sake, that seconds were required at a particular stockholders' meeting, perhapsbecause they are specifically required by a rule adopted by the stockholders, a 51 percent stockholder shouldnot be required to obtain a second. In this case, the purpose of the second is not served and requiring asecond might prevent a matter that is certain to be approved from being considered. Lawyers havecircumvented the requirement of obtaining a second by having a significant stockholder who desires to proposeaction give a proxy for one or more shares to another individual for the purpose of ensuring that a second willbe obtained.

7. What is proper decorum at a directors' or stockholders' meeting? How can it be enforced? Canan unruly director or stockholder ever be removed from a meeting? If a director is removed, whatis the effect of corporate action taken after his or her removal?

Decorum at directors' meetings, an issue also raised by the Food Co. scenario, is rarely the subject ofdiscussion. Directors should, however, act professionally and civilly; demonstrate respect for one another, evenif they disagree; permit differing views to be heard without interruption; and strive to create an atmosphere oflogical discussion as opposed to emotional shouting.

Decorum at stockholders' meetings, on the other hand, an issue raised by the situation that Railroad hasexperienced in recent years, is often the subject of commentary and specific rules are regularly adopted forstockholders' meetings. Like directors, stockholders should treat each other with respect and should permitothers to express differing views without interruption. Rules adopted for stockholders' meetings typically fosterthese goals by providing, for example, how a stockholder is recognized by the chair, that only one stockholdermay speak at a time, and the length of time stockholders are permitted to speak.

There appear to be no cases or commentary dealing with the removal of an unruly director from a directors'meeting. The removal of a director by the other board members is probably not permissible because it is moreimportant to provide even an unruly director with an opportunity to exercise his or her fiduciary duty. Actions

taken by the directors after the removal of a director, even assuming a quorum is still present, are thereforeinvalid.

Directors faced with an unruly fellow board member have only one remedy: to have the unruly directorremoved from the board by the stockholders. Corporations have, on the other hand, developed fairly uniformprocedures for removing unruly or disruptive stockholders from stockholders' meetings. Nearly all stockholders'meeting scripts provide elaborate procedures for the chair to remove an unruly or disruptive stockholder shouldit become necessary.

The absence of a workable set of guidelines or principles by which to conduct stockholders' meetings iscurrently the subject of a Business Law Section project being undertaken by the Subcommittee on the Conductof Directors' and Stockholders'. (See sidebar regarding the Business Law Section subcommittee.) Interestingly,the research performed by the subcommittee in connection with the preparation of these guidelines revealedseveral cases scattered across the country with holdings on corporate governance issues contrary to generallyestablished stockholder meeting practice.

For example, several cases have held, in the absence of a contrary charter or bylaw provision, that the chair ofa stockholders meeting has "merely ministerial powers." See American Aberdeen-Angus Breeders' Ass'n v.Fullerton, 156 N.E. 314 (Ill. 1927); Commonwealth v. Vandegrift, 81 A. 153, 156 (Pa. 1911). Modern practice,on the other hand, accords much more than "ministerial" authority to the chair. See Model BusinessCorporations Act §�7.08; Sitka v. Firestone Tire & Rubber Co., 746 F.2d 1479 (6th Cir. 1984); London v.Archer-Daniels-Midland Co., No. 14638, 1996 Del. Ch. LEXIS 12 (Del. Ch. 1996).

Other courts have upheld actions by a chair constituting the exercise of greater than "ministerial" authority.Alliance Co-op. Ins. Co. v. Gatschke, 142 P. 882 (Kan. 1914) (Chair has right to determine legality of motion);Sitka v. Firestone Tire & Rubber Co., 746 F.2d 1479 (6th Cir. 1984) (Chair has power to eject stockholder whorefused to conform to rules established by the chair).

Likewise, contrary to generally perceived practice, the decisional authority is that the chair, except in anemergency, is without the power to adjourn a stockholders' meeting. Instead, this power belongs to thestockholders. See Chicago Macaroni Mfg. Co. v. Boggiano, 67 N.E. 17 (Ill. 1903); State ex. rel. Ryan v.Cronan, 49 P. 41 (Nev. 1897); Penn-Texas Corp. v. Niles-Bement-Pond Co., 112 A.2d 302, 307 (N.J. 1955); Inre Petition of Dollinger Corp., 274 N.Y.S.2d 285, 288 (N.Y. Sup. Ct. 1966); State ex rel. Price v. DuBrul, 126N.E. 87, 90 (Ohio 1919); Sagness v. Farmers Co-op Creamery Co., 293 N.W. 365 (S.D. 1940).

There are also differences among states on many issues relating to the conduct of stockholders' meetings. Forexample, in Illinois and Pennsylvania, the decisional law is generally to the effect that in the absence of acharter or bylaw provision designating the chair, the stockholders have the right to elect the chair. SeeAmerican Aberdeen-Angus Breeders' Ass'n v. Fullerton, 156 N.E. 314 (Ill. 1927); Commonwealth v. Vandegrift,81 A. 153 (Pa. 1911). In Nevada and Texas, stockholders may elect a chair if the person designated in thebylaws refuses or fails to act. See State ex rel. Ryan v. Cronan, 49 P. 41 (Nev. 1897); ITC Cellular Inc. v.Morris, 909 S.W.2d 182 (Tex. Ct. App. 1995).

In Delaware, on the other hand, the stockholders' ability to elect a chair may depend on the exact wording ofthe provisions of the bylaws, if any exist, and stockholders may only have the ability to replace the chair if thebylaws recognize some residual authority of the stockholders to do so. See Duffy v. Loft Inc., 152 A. 849 (Del.1930).

In New York, there is some authority for the proposition that the directors have the right to elect the chair. SeeJordan v. Allegany Co-op. Ins. Co., 558 N.Y.S.2d 806 (N.Y. Sup. Ct. 1990). Likewise, there is a difference ofopinion as to whether the stockholders have the right to overrule a decision of the chair. Compare Duffy v.Loft, 152 A. 849, 851 (Del. 1930) with Model Business Corporations Act §�7.08.

As previously discussed, the presence of persons other than directors, stockholders or their proxies atcorporate meetings is in some dispute. Compare Armstrong v. Marathon Oil Co., 513 N.E.2d 776, 792 (Ohio1987) (only stockholders or their agents permitted at stockholders' meetings) with Salama-Dindings PlantationsLtd. v. Durham, 216 F. Supp. 104, 115 (S.D. Ohio 1963) (directors permitted to have counsel present at boardmeetings); see also Miranda v. President & Directors of Georgetown College, 818 F. Supp. 16, 18 (D.D.C.1993).

Whether or not stockholders can break a quorum by withdrawing from the meeting varies from state to state.Compare Berlin v. Emerald Partners, 552 A.2d 482, 493 (Del. 1989); Potter v. Pattee, 493 S.W.2d 58 (Mo. Ct.App. 1973); In re Argus Printing Co., 48 N.W. 347 (N.D. 1991); Commonwealth v. Vandegrift, 81 A. 153, 155(Pa. 1911); ITC Cellular Inc. v. Morris, 909 S.W.2d 182 (Tex. Ct. App. 1995) with Levisa Oil v. Quigley, 234S.E.2d 257 (Va. 1977). This issue is also addressed by statute in several states. Compare ALA. CODE §�10-2B-7.25(c) (1997) with CAL. CORP. CODE §�602(b) (Deering 1997).

Finally, whether a stockholder may change a vote after the polls close in a contested election is the subject ofdifferences from state to state. Compare Magill v. North American Refractories Co., 128 A.2d 233, 237 (Del.1956) (stockholder may change his vote until the polls close) with Young v. Jebbett 211 N.Y.S. 61 (N.Y. Sup.Ct. 1925) (proxies accepted after polls had closed but before announcement of vote).

These cases and their holdings may come as a surprise to many corporate lawyers because they assume thatexisting case law supports modern corporate practices and because this area of the law is perceived to beconsistent from state to state. The BLS subcommittee research, on the other hand, demonstrates that lawyersshould carefully examine the case law regarding stockholders meetings in states where their corporations areincorporated. This closer examination may reveal default law (default meaning in the absence of charter orbylaw provisions) that should be altered by charter or bylaw provision or by use of the Guidelines to reflectmore modern (or desirable) stockholder meeting practices.

The existence of so many unanswered questions in corporate governance practice and the absence of aworkable set of rules for the conduct of stockholders' meetings represent a vacuum in this narrow area ofcorporate law. The creation of guidelines for the conduct of stockholders' meetings by the Subcommittee on theConduct of Directors' and Stockholders' Meetings is expected to help fill this void. Moreover, these guidelinesare expected to help educate lawyers as to what the default law is on many of these issues from state to state.

Pennsylvania corporations � a bad investment?

On Nov. 19, 1996, Judge Donald W. Vanartsdalen, sitting in the U.S. District Court for the Eastern District ofPennsylvania, handed down what may be one of the most significant corporate governance decisions of the '90sin Norfolk Southern Corp. v. Conrail Inc., C.A. No. 96-CV-7167 (E.D. Pa. Nov. 19, 1996). This case,interpreting Pennsylvania's constituency statute, represented the first legitimate, high-profile test of thatlandmark, controversial legislation.

Traditional corporate statutes and case law provide that the directors of a corporation owe a fiduciary duty tothe corporation and its stockholders and by implication provide that the directors' primary responsibility whenmaking a corporate decision is to determine whether that decision is in the best interests of the stockholders.That is because directors are responsible for generating profits or returns for the stockholders who are theowners of the corporate entity. Dodge v. Ford Motor Co., 170 N.W. 668, 684 (Mich. 1919).

Constituency statutes, on the other hand, provide that the board of directors may, and in Connecticut in certaincircumstances must, consider the impact of corporate decisions on corporate constituencies other thanstockholders. The Pennsylvania statute, for example, provides that "the board of directors�.�.�.�may, inconsidering the best interests of the corporation, consider to the extent they deem appropriate . . . [t]heeffects of any action upon any or all groups affected by such action, including shareholders, employees,suppliers, customers and creditors of the corporation, and upon communities in which offices or otherestablishments of the corporation are located." 15 Pa. C.S.A. '�1715(a) (Purdon's 1995 Pamphlet).

Constituency statutes, if drafted and interpreted simply to mean that directors may or must consider theimpact on corporate decisions on other constituencies, but must ultimately consider the impact on stockholdersas paramount, are not controversial. In fact, the ALI Principles of Corporate Governance, which generallyrepresent a mainstream view, take the position that interests of other constituencies may be considered aslong as the decision does not have a significant adverse effect on long-term stockholder interests.

Likewise, courts in "traditional" (nonconstituency) states, such as Delaware, have concluded that directors mayconsider the interests of other constituencies. See, for example, Paramount Communications v. Time Inc. 571A.2d 1140, 1153 (Del. 1989). Those courts, however, maintain the primacy of the stockholders by explainingthat while other interests may be considered, the effect on stockholders must remain the primaryconsideration. See, for example, Revlon Inc. v. MacAndrews & Forbes Holdings Inc., 506 A.2d 173 (Del. 1986).

On the other hand, drafting and interpreting a constituency statute to mean that directors may consider theimpact of corporate decisions on all constituencies and may consider the interests of any constituency to beparamount to all others is controversial. Pennsylvania drafted and adopted such a statute in 1990. That statute,in addition to the more common constituency provisions previously quoted, specifically provides that: "[t]heboard of directors . . . shall not be required, in considering the best interests of the corporation or the effects ofany action, to regard any corporate interest or the interest of any particular group affected by such action as adominant or controlling interest or factor." 15 Pa. C.S.A. '�1715(b) (Purdon's 1995 Pamphlet).

Norfolk Southern Corp. v. Conrail Inc. presented the first major opportunity for a court to interpret that

provision of the constituency statute. Until Conrail, there remained some thought that courts might interpretthat provision only to apply to nonstockholder constituencies in a manner more consistent with the law in otherstates so that stockholders would nonetheless be given some favored status over other constituencies. Thedecision in Conrail proved otherwise.

The Conrail case involved the proposed merger of Conrail Inc. with CSX. On Oct. 15, 1996, after weeks ofnegotiation, Conrail's directors accepted CSX's proposed acquisition and publicly announced the merger. Acompeting and allegedly higher priced bid from Norfolk Southern Corp. materialized on Oct. 24, 1996. Twoweeks later, CSX followed Norfolk Southern's bid with an increase of its own, which was, in turn, followed by asuccessively higher Norfolk Southern bid two days later. Although each CSX bid was followed by a successivelyhigher Norfolk Southern bid, the Conrail directors never wavered from their preference for the CSX merger.

The Conrail directors invoked the Pennsylvania constituency statute to support their decision that the CSXopportunity was better for Conrail because it was better for Conrail's employees, and in particular its CEO, thanthe Norfolk Southern opportunity. Norfolk Southern, also a Conrail stockholder, sued Conrail and its directorsalleging that the Conrail directors had breached their fiduciary duties to the stockholders by not accepting thehigher Norfolk Southern bid.

The U.S. District Court for the Eastern District of Pennsylvania interpreted § 1715(b) to include stockholders,concluding that the statute "provides that in considering the best interests of the corporation or the effects ofany action, the directors are not required to consider the interests of any group, obviously includingshareholders, as a dominant or controlling factor . . ." Norfolk Southern Corporation, et al. v. Conrail Inc., etal., C.A. No. 96-CV-7167 at 643 (E.D. Pa. November 19, 1996) (emphasis supplied).

Although not expressly stated in the opinion, the implicit holding in Conrail is that directors may place theinterests of any of these other constituencies ahead of those of the stockholders in making corporationdecisions. Id. at 647 ("the Pennsylvania statutes . . . were enacted . . . in order to exclude . . . decisions thatseem to mandate or suggest that the primary or perhaps only consideration in a situation where there is anattempted takeover or a rival competition for a takeover merger between corporations is what is the bestfinancial deal for the stockholders . . .").

The Pennsylvania statute and the Conrail decision have been variously applauded and criticized bycommentators. Compare Wai Shun Wilson Leung, "The Inadequacy of Shareholder Primacy: A ProposedCorporate Regime that Recognizes Non-Shareholder Interests," 30 Column. J. L. & Soc. Probs., 587, 615-18(Summer 1997), with Dale Arthur Oesterle, "Mergers and Acquisitions: Revisiting the Anti-Takeover Fervor ofthe '80s through the Letters of Warren Buffett: Current Acquisition Practice is Clogged by Legal Flotsam fromthe Decade," 19 Cardozo L. Rev. 565 (September/November 1997); David N. Hecht, "The Little Train ThatCouldn't: Did the Pennsylvania Anti-takeover Statute Fail to Protect Conrail from a Hostile Suitor?," 66Fordham L. Rev. 931 (1997). Essentially the Conrail decision permits corporate directors to dispose of thecorporation that they manage for significantly less value to the stockholders in order to gain benefits for othercorporate constituencies.

State of incorporation, as an investment issue, has long been ignored by investment professionals. One of themore notable features of the debate over the Pennsylvania constituency statute and the Conrail case is that themainstream financial media has recognized, and continues to recognize, this as a significant investmentdifference between the corporate law of Pennsylvania and most other states.

A May, 1998 "Nightly Business Report" television program, for example, highlighted the disadvantages of beinga stockholder in a Pennsylvania corporation because of, among other things, its constituency statute. Thatreport concluded that although there is no clear evidence yet that investors are discounting stocks ofcorporations incorporated in Pennsylvania, experts believe that companies avoid making tender offers forPennsylvania incorporated corporations. If, in fact, fewer tender offers are made for Pennsylvania incorporatedcorporations, it seems a matter of basic economics that they should be worth less than if they wereincorporated elsewhere.

An Oct. 25, 1998 Baltimore Sun article on T. Rowe Price's investment in Pennsylvania's AMP Inc. echoed thatconclusion and provides an excellent example as to how Pennsylvania's laws are beginning to change the wayinvestment bankers and money managers view Pennsylvania corporations. That article quoted Stephen Jansen,a T. Rowe Price analyst, as saying, "any time you make an investment in a Pennsylvania corporation, youprobably have to take . . . into account [Pennsylvania's legal setup] . . . [a]nd that probably means you're notgoing to pay as much for companies that are based there."

Many of these same issues were raised by legislators in debates over the adoption of the 1990 Pennsylvaniaanti-takeover legislation. Sen. Brightbill noted that fiduciary duties historically were based on the principle thatthe managers of a business owe their primary responsibility to its owners. He strongly opposed diminishing thestockholders' place in the corporate hierarchy to a level equal to or lesser than other constituencies. He worried

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that raising the level of these other constituencies might open up directors to suits from unions, suppliers andeven communities if they felt the directors did not properly consider them in corporate decisions.

Sen. Fumo criticized the other constituencies statute as socialist and characterized the statute as the beginningof the end of the capitalist order. He noted that stockholders expect their investment to be protected by thedirectors and that, by adopting the constituency statute, investors would find Pennsylvania-incorporatedcompanies less attractive.

The net result of Pennsylvania's constituency statute, as interpreted and applied by the court in Conrail, is thatdirectors of Pennsylvania corporations have extraordinary discretion in making corporate decisions. So muchdiscretion, that nearly any action the directors may wish to take can be supported by asserting that it is in thebest interest of one constituency or another. Supporting such a decision is not difficult, given that what isadverse to any constituency recognized in the Pennsylvania statute is certain to be beneficial to another. AsRichard Booth noted in the February 1998 edition of The Business Lawyer, "management may be able to avoidaccountability altogether, conveniently justifying any decision which one group may protest by pointing to itsduty to another group."

Lawyers advising the directors of a Pennsylvania corporation are, therefore, easily able to find legal support forany proposed board decision. In board discussions and resolutions, lawyers should carefully document which ofthe many constituencies a particular decision benefits and how. Beyond that, counseling directors ofPennsylvania corporations is now significantly easier.

Advising minority stockholders or investors in Pennsylvania corporations, on the other hand, has becomesignificantly more difficult as a result of Pennsylvania's constituency statute. If the minority stockholder hasenough negotiating leverage or input into the investment vehicle from the outset, even if the business isphysically located in Pennsylvania, a lawyer representing a minority stockholder or investor would serve his orher client well to require the entity formed to operate the business be incorporated in Delaware, or anothernearby state. If the business already exists as a Pennsylvania corporation, counsel to the investor shouldrequire that it be reincorporated in Delaware, or another nearby state, through a reincorporation merger.

If that minority stockholder or investor does not have sufficient leverage to influence the state of domicile ofthe corporation, a lawyer advising a minority investor should carefully advise his or her client of the potentialstrategic and financial disadvantages that may accompany stock ownership or investment in a Pennsylvaniacorporation. In particular, investors should be advised of the broad latitude that the board may have inimplementing decisions that are not in their best interests. Beyond making certain that the client understandsthese disadvantages, however, if the investor does not have enough leverage to get out of Pennsylvania, theremay be little a lawyer can do to protect his or her client from Pennsylvania's constituency statute.

The debate over Conrail, the Pennsylvania constituency statute and the balance of power between stockholdersand other constituencies raises a critical question in corporate governance first asked in the 1930s, hotly foughtover in the takeover battles of the '80s, and finally incorporated into constituency statutes in the '90s. Namely,whose corporation is it and for whose benefit do corporations exist?

The debate over whose corporation it is will continue to evolve over the next decade, and, as it does, many ofthe following questions may be answered: Will the traditional concept that it is the stockholders who "own" thecorporation and to whom the directors are primarily responsible prevail? Will more states follow thePennsylvania lead and adopt the theory, inherent in Pennsylvania's statute, that corporations now exist, in apseudo-socialist way, for the benefit of their management, employees or other constituencies as much, if notmore so, than for stockholders? Will investment professionals finally recognize state of incorporation as aninvestment issue and discount stock values of corporations formed in states following the Pennsylvania lead? Ifthey do, will it ultimately be market, instead of legal forces, that swing the pendulum back in favor of thestockholders?

� Eric G. Orlinsky

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ABA Section of Business LawBusiness Law TodayJanuary/February 1999

Calling those with fortitude

So you need a dissident director

By STEVEN A. SEIDEN

Seiden is president of Seiden Krieger Associates, an executive search firm in New York City.

America is well past the dawn of shareholder activism and has reached high noon of maximizing shareholdervalue. Indeed, corporate governance has traveled light years since the landmark Smith v. Van Gorkom case, inwhich corporate directors were put on notice that they could no longer rubber stamp the decisions ofmanagement.

Corporate governance concepts that were once espoused by those on the fringe have now become mainstreamthinking. Joining the ranks of activists are investors from a variety of constituencies. Institutions like theCalifornia Public Employees' Retirement System (Calpers) are leveraging their investment dollars by proddingdirectors of portfolio companies to be more responsive to shareholder value. In fact, a recent announcementfrom Calpers discloses that they may indeed nominate their own representatives to become directors ofcompanies whose boards resist the kinds of changes that they deem necessary.

And then in late May 1998, a watershed event occurred. Teachers Insurance and Annuity Association (TIAA),

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the largest U.S. pension fund, succeeded in removing the entire nine-member board of Furr's /Bishop's, afoundering cafeteria company � and replacing it with seven TIAA-nominated directors � at the company'sannual meeting.

Apart from institutions like Calpers and TIAA, another sector heard from with increasing frequency is thegrowing number and size of limited partnerships whose stated intention is replacing entrencheddirectors/management as a means of enhancing shareholder value. Those once called "raiders" have earnedthe respect of shareholders by forcing change on underperforming companies as well as on those resistinglegitimate takeover bids.

The traditional modus operandi of an activist investor in such situations was to take an initial position in thetarget company and, failing other efforts to bring about the desired changes, call a special meeting ofshareholders for the purpose of nominating a slate of directors usually well known to the investor. If heprevailed, the activist would supposedly "guarantee" a vote in favor of his proposals. While possibly benefitingshareholders, such dissident director nominees aren't independently representing them.

In the spirit of acting solely in the best interests of shareholders, only independent directors with no connectionto the activist ought to be nominated by him. Corporate governance guru Ira Millstein, senior partner of WeilGotshal & Manges LLP, properly prefers the term "shareholder slate director" rather than "dissident director."How does the investor, with his own well-intentioned agenda for maximizing shareholder value, proceed torecruit an independent slate of director nominees whose efforts will serve his best interests as well as those ofother shareholders?

On the surface, this task is not as straightforward as initially might be perceived. True, there are manyindividuals eager to serve on boards � both those already on one or two as well as those who are eager to doso but without such experience.

Serving as a dissident or shareholder director requires someone who is or has been on a corporate board. Theneed to deal immediately with the kinds of thorny issues confronting a newly elected director in the aftermathof a hard-fought proxy contest are too weighty and complex for the corporate governance novice. Moreover,such directors need to be unfettered by any financial, family or close personal ties to the activist or to the otherdirectors. In short, there can be no conflicts of interest. That includes potential influence from directors orexecutives of other companies on whose boards or management teams she may serve. Indeed there still existsan "old school tie" mentality with some directors. "I'll never be invited to serve on another board if I go againstmanagement," sadly proclaimed one potential director. "It's heresy!" she exclaimed.

The notion that directors should align themselves with management or even with the activist investor seekingto promote beneficial change is contrary to the fiduciary responsibility that every board member accepts.Regardless who has nominated her, a director's allegiance should be solely to the shareholders. Just asdirectors must hold management accountable, so must stockholders hold directors accountable for enhancingshareholder value.

When an activist or corporate acquisitor nominates a dissident or shareholder director, his cause needs to be inthe best interests of the shareholders. Director nominees in such contested situations serve as a validation ofthe activist/acquisitor's motivation, which should be "on the side of the angels."

It follows that activists need to recruit director nominees who are willing if not eager to stand up and becounted and who, under the pressures to which they will surely be subjected, will not succumb to any course ofaction that does not singularly benefit the shareholders. This calls for an individual with true resolve andleadership qualities, particularly if the activist is unable to replace the entire board. In that instance, theconceivably lone or in-the-minority dissident shareholder director may need to produce a sea change on theboard in order to reverse the course of the corporation. Such directors will need to demonstrate faultless logicand be persuasive advocates of their positions.

A good example of this is the case of Armstrong World Corp. The company was a real underperformer at thetime the Belzberg interests targeted it. In a proxy contest, Belzberg had acquired only sufficient stock tonominate and elect one director. Fortunately for the company, he was Michael Jensen, the well-known HarvardBusiness School professor. The sole dissident on the board, he was sufficiently influential to bring about long-needed reforms. Without being officially designated as such, he became the "lead director."

Jensen persuaded the board to replace the management team. With his quite appropriate and effectivecoaching from the sidelines, he was in no small way responsible for what was ultimately a dramatic reversal ofArmstrong's fortunes. The stock price soared as a result. However, the irony of this successful Jensen-engineered turnaround was that the Belzbergs, who nominated him to the board, sold their position early on inthe process, never reaping the rewards of the longer-term shareholders. The dissident shareholder directormust be prepared and indeed qualified to serve in a leadership role.

Where and how to find such stalwart independent director candidates? Though tempting, it is strategicallyimperative that activists do not recruit such nominees from among their business associates, paid consultants(lawyers, accountants, etc.) or social acquaintances. In a proxy contest, that merely invites management andthe entrenched board to accuse the activist of the very same cronyism of which she may strategically need toaccuse them.

The National Association of Corporate Directors, in Washington, offers a service that can provide the names ofpotentially available member directors. Corporate lawyers and investment bankers frequently keep lists ofdirectors willing to serve as nominees in contested situations. In most cases, it is wise to select directornominees who have had experience in that industry, especially where issues of valuation or managementperformance are involved.

Though a group of extant directors may be less interested in creating shareholder value than pleasingmanagement, their estimation (even if flawed) of that company's worth in the marketplace as well as theindustry knowledge that they bring to the table strongly suggests that their replacements need be industry-specific.

That strategy proved to be decisive in the proxy contest between activist investors Guy Wyser-Pratte/Spear,Leeds & Kellogg and the Rexene Corp., a Texas-based chemical company. The Rexene board had used the"just say no" defense to refuse a $15 per share bid from Huntsman Corp., also a chemical company. Rexene'sstock was trading at only $10! Wyser-Pratte wisely reasoned that to nominate either his own associates orothers lacking chemical knowledge would not sufficiently impress Rexene's shareholders to vote to call aspecial meeting.

Instead, Wyser-Pratte recruited a blue-ribbon slate of four nominees, three of whom had prior experience assenior executives at some of the nation's most respected chemical companies and knew about what Rexenewas worth. In no small way, that strategic move caused the shareholders to vote in favor of the specialmeeting, in the face of which the Rexene board acceded to a sweetened ($16 per share) Huntsman bid. TheWyser-Pratte nominees were never called on to serve.

What inducements are required to recruit such dissident/shareholder directors? There is, of course, the issue ofcompensation. If the director nominees are actually elected, then the matter of compensation isstraightforward. They receive the prescribed directors' fees. Of course, it is the prerogative of such newdirectors to increase their fees (albeit in accordance with the company's bylaws) if their service through adifficult transition period warrants the raise.

However, if the nominees do not actually serve as directors, either because the activist or acquisitor loses theproxy contest or because the desired corporate changes are made without a new board having to be voted in,then the nominees will, in fairness, expect to be compensated nonetheless. This is certainly reasonable. Indeedthe mere stature, reputation and experience of the nominee may not be totally irrelevant during the post-nomination/pre-election period.

A case in point is the Rexene proxy contest above. Each nominee was a recognized figure in the field threeformer chemical industry executive officers and one corporate law professor. They justly expected to becompensated for the use and value of their names as well as for their time in the event they never served andtherefore didn't receive directors' fees from Rexene. Wyser-Pratte/Spear Leeds thus entered into a writtenagreement with each nominee, which provided a fee of between $10,000 and $15,000 in the event that theindividual did not become a Rexene director.

In light of the fact that dissident director nominees are the potential targets of lawsuits, Wyser-Pratte/SpearLeeds indemnified them and additionally agreed to reimburse certain expenses incurred during the period ofservice as director nominees. Once elected, such indemnity would logically cease, owing to coverage underRexene's D&O insurance policy.

In another well-publicized proxy contest, which ensued when U.S. Surgical Corp. sought to take over a smallercompetitor, Circon Corp., on an unsolicited basis, U.S. Surgical paid each of its two nominees a fee of$100,000, payable in 6.963 Circon shares, for merely agreeing to stand for election to the Circon board. Thatwas in addition to fees received from Circon for actual director service. The two nominees were Charles Elson, aStetson University law professor noted for his expertise in corporate governance, and Victor Krulak, a retiredU.S. Marine general. U.S. Surgical also agreed to indemnify and reimburse certain related out-of-pocketexpenses for both nominees.

Another example was Contran Corp., controlled by takeover specialist Harold Simmons. It sought to acquireLockheed Corp. and offered to both Raymond Troubh, a professional director who today sits on 11 publicboards, and then-Admiral Elmo Zumwalt an amount equivalent to a year's worth of Lockheed directors' fees for

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agreeing to be nominees.

The preceding are all examples of compensation and other consideration provided to directors at large.

What follows are several examples of financial packages offered by activists to dissident director nominees whowere expected to play a more pivotal role.

Dickstein Partners Inc., in connection with its efforts to effect a sale of Hill Stores, sought to elect its own slateof dissident directors, including two experienced retailing executives who were not partners of Dickstein. Onesuch nominee was Chaim Edelstein, the former chairman of retailer Abraham & Strauss, whom Dickstein alsoretained as a strategically important consultant in the Hills matter. Dickstein agreed to pay Edelstein aconsulting fee of $50,000 and a contingent fee equal to 1.5 percent of net profits in respect of Dickstein'sinvestment in Hills. Moreover, Dickstein was prepared to install Edelstein as Hills' interim CEO if the extantsenior management exercised its rights to resign.

Michael Jensen, mentioned earlier, deservedly received from the Belzberg interests options on 100,000 sharesof Armstrong World Corp. Carl Icahn, in his second proxy contest to force a spin-off of RJR Nabisco's foodbusinesses, retained Thomas Ratigan, former Heileman Brewing executive, to head his (Ichan's) dissident slate,which included a total of 10.

Reportedly, Ratigan had a six-month contract, which called for $2 million in salary plus an additional 5 percentof Icahn's profit, net of proxy expenses, should he prevail and the RJR stock subsequently increased in value.

While I advocate total independence for dissident nominees, I recognize that any payment by an activist mayappear to fetter that director-in-waiting. Likewise it could be maintained that even directors of companieswhere no control issues exist are paid by those very companies. (Indeed their directors' fees are paid by acheck signed by the CFO, who serves at the pleasure of the chairman.) I submit that director independence isa matter of how a particular director views his or her fiduciary responsibility. Therefore, it is incumbent on thenominator, whether activist or the extant board nominating committee chair, to select potential directors whosereputations and track records bespeak total independence regardless of who pays their fees.

Corporate activists are becoming more numerous, and their war chests are being filled by institutional investorswith increasingly greater funding capabilities.

Drawing to a close are the days when such activists enlisted their cronies to serve as nominees. To convinceshareholders that they are "on the side of the angels," these activists will need to garner the support ofsophisticated, industry-specific, indeed hard-to-find nominees, who will command competitive fees (includingequity participation) for the value they contribute.

Perhaps the term "dissident director," will yield to Ira Millstein's preferred term, "shareholder slate director,"reflecting a more enlightened activist community of the future. As Charles Elson put it, "As the power andactivity level of institutional shareholders grows, so will the nomination and election of the dissident slate ofdirectors. The various challenges such individuals will face will have a profound impact on the development ofboth the corporate practice and the corporate law."

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ABA Section of Business LawBusiness Law TodayJanuary/February 1999

Shareholders vs.the world

'Revlon Duties' and state constituency statutes

By R. CAMMON TURNER

Turner is an associate at Schwabe Williamson & Wyatt P.C. in Portland, Ore.

The buzz phrase, "Merger Mania," headlines business publications on a daily basis. The frenzied wave of hostiletakeovers of the 1980s has been largely supplanted by the strategic mergers of today. By some accounts,hostile takeovers account for only one in 200 deals.

A merger now is frequently an integral feature of a long-term strategy designed by corporate directors in the"best interests of the corporation." Companies routinely engage in friendly mergers to generate economicefficiencies, find qualified successors for retiring officers, get into new capital markets, combat competition andcomplete exit strategies for initial investors. That is especially true for smaller and emerging growth companies.Although most strategic mergers do not generate the tabloid-quality stories of their rancorous counterparts,corporate directors must carefully structure and assess friendly mergers. The risks of bad decision making aresimply too great to do otherwise.

Traditionally, it was said that corporate directors owed fiduciary duties exclusively to the company. That duty

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was generally equated with an obligation to act in the best interests of the shareholders by increasing theirwealth. Corporate governance, however, has gradually evolved to include consideration of parties other thanshareholders and their bank accounts. What is in the best interests of a corporation is commonly judged bywhat advances the welfare of shareholders as well as employees, customers, creditors and communities.

Under Delaware law, for everyday decisions, a board has no duty to maximize short-term value. So long asthere is a rationally related benefit for shareholders, a board may consider the interests of nonshareholderconstituencies. However, the duties of corporate directors change considerably in three basic situations. Whena board is on the verge of selling, breaking up or transferring control of the corporation, directors may notconsider the interests of nonshareholders and have a narrow duty to maximize shareholder value. ParamountCommunications Inc. v. QVC Network Inc., 637 A.2d 34 (Del. 1994).

The duties imposed on directors in these situations are popularly (and unpopularly) known as the "RevlonDuties" named for the infamous case, Revlon Inc. v. MacAndrews & Forbes Holdings, 506 A.2d 173 (Del.1986). Once Revlon Duties are triggered, consideration of nonshareholder interests potentially constitutes abreach of a board's fiduciary duties. This is the case for both hostile takeovers and strategic, friendly mergers.

A change of control represents the last chance for shareholders to obtain a control premium for their shares.Revlon Duties greatly diminish the risk that directors, whose jobs are on the line, will engage in self-interestedtransactions at the expense of shareholders. Directors cannot simply approve a friendly merger based on theirbusiness judgment that a proposal delivers more value in the long term. A board that initiates a merger that itbelieves will provide the greatest long-term value to shareholders may trigger Revlon Duties.

The "bidding" and "breakup" triggers are relatively easy to define. If a company actively engages in a biddingprocess to sell the company or abandons a long-term plan in favor of quick, highly profitable breakup, theimposition of Revlon Duties is easy to justify. Regrettably, what constitutes a change in control has not beensettled. What percentage of shares -- 51 percent or less -- constitutes a change in control? A few casessuggest that Revlon Duties are activated on an attempted transfer of effective control, which could beconsiderably shy of a simple majority. Mills Acquisition Co. v. Macmillan Inc., 559 A.2d 1261, 1285 (Del. 1988).

Revlon Duties do not require getting top dollar through an auction of the company to the highest bidder. Aboard need only act reasonably to seek the transaction offering the best value reasonably available to theshareholders. Best value may be determined by using various methods other than an auction, including acanvass of the market or the gathering of detailed, reliable evidence to support the proposed price. So long asthe approach is conducted even-handedly and without discrimination against any bidders, directors normallydischarge their Revlon Duties.

The duty to maximize shareholder wealth by any permissible method is often at odds with plans to merge acompany for its continued health or survival. All is not lost for companies with long-range, ambitious plans.State legislation may temper strict Revlon Duties and provide adequate protection for directors of companiesengaged in mergers that do not bring short-term value to shareholders. The role of such statutes is especiallyimportant in light of the QVC decision, which prohibits directors from simply approving a strategic mergerbased on their business judgment that the transaction provides more value in the long term.

The takeover hysteria of the 1980s triggered a wake-up call to many states wishing to protect localcorporations. The prevalence of junk-bond financing often hamstrung acquiring companies. New owners wereforced to cut costs and maximize profits immediately. Many companies were acquired simply for their "bust-up" value and post-acquisition fire sales of assets were commonplace. In response, more than half of thestates adopted "nonshareholder constituency" statutes (or simply "constituency" statutes). These statutespermit (or even require) directors to consider the interests of parties other than shareholders when evaluatingmerger or other consolidation options.

The underlying theme of these statutes is that a director may determine what is in the "best interests of thecorporation" apart from what directly and immediately benefits the shareholders. Some statutes are limited todecisions affecting corporation control, but most extend the permissive consideration to any corporate action incalm times as well. Nonshareholder constituencies routinely include employees, customers, creditors, suppliersand communities. In some cases, directors may consider other pertinent factors, such as national and stateeconomies, long-term and short-term effects of a transaction as well as the benefits of remaining independent.

Notably, most statutes do not specify the weight that should be accorded to a particular factor or constituency.The U.S. District Court for the Eastern District of Pennsylvania held in a preliminary injunction hearing that aboard did not breach its fiduciary duties to shareholders by rebuffing a rival bid in favor of a less lucrative offerthat ostensibly provided better protection for employees. Norfollk Southern Corp. v. Conrail Inc., C.A. No. 96-CV-7167 (E.D. Pa. Nov. 19, 1996). Under the Pennsylvania constituency statute, the court explained thatdirectors are not required to treat the financial welfare of shareholders as the paramount concern. The absence(or oversight) of a shareholder-primacy factor in constituency statutes represents a major, controversial leap

away from traditional corporate governance law.

Conspicuously absent from the list of states adopting constituency statutes is Delaware, home of theshareholder-friendly Revlon Duties and state of incorporation of more than 40 percent of the companies listedon the New York Stock Exchange and more than half of Fortune 500 companies. Most states, including thosewith constituency statutes, look to Delaware law when interpreting local corporate law. Normally, there is noconflict between Delaware takeover law and state constituency statutes. Absent a trigger of Revlon Duties,both permit consideration of nonshareholder interests in making most corporate decisions.

Many constituency statutes go further than Delaware law. Typically, constituency statutes do not require anynexus between nonshareholder consideration and a rationally related benefit for shareholders. In addition,under constituency statutes, there is no magical time when a board must stop thinking about nonshareholdersand think only of shareholders. Under constituency statutes, directors may consider nonshareholders at everystep of the process.

The vexing question is what are the duties of a board engaged in a change-of-control merger in a state with aconstituency statute? Are directors bound by a goal of profit maximization or may they structure mergers toprotect employees, customers, creditors and the community to the financial detriment of shareholders? Theseare very real concerns for high-growth and emerging companies who engage in strategic mergers to replaceretiring officers, enter new capital markets and combine strengths to maintain competitiveness. Generatingquick profits is often incompatible with their corporate mission. Strategic mergers are unlike hostile takeoversin another important way. Which company will be the surviving entity may be a matter of technology ownershipor geographical location rather than strong cash flow or a healthy balance sheet.

Poor initial decision making may lead a corporation down the primrose path. Revlon Duties require that oncethe decision to transfer control of the company has been made, a board must act solely in the shareholders'best interest by seeking to maximize their wealth. The board may not observe the interests of nonshareholdersif such consideration will adversely affect shareholders' wallets.

Corporations may avoid Revlon Duties by structuring transactions in ways that do not constitute a change incontrolling ownership of the post-merger entity. One possible solution is to engage in a stock-for-stock mergerwith a company of equivalent size in which neither company receives a premium. According to the QVCdecision, Revlon Duties are inapplicable when control "remains in a large, fluid, changeable and changingmarket." However, boards should be cautious not to trigger Revlon Duties inadvertently.

QVC left open the question of how many shares must be amassed by a single person or identifiable groupbefore control has shifted. The amount could be significantly less than 51 percent. In addition, strategicmergers protected by agreements containing bust-up fees, stock lock-ups or asset lock-ups may also triggerRevlon Duties.

The Delaware Supreme Court has intimated that post-merger super-majority rights or other minorityshareholder protections may preclude imposition of Revlon Duties. In Ivanhoe Partners v. Newmont MiningCorp., 535 A.2d 1334 (Del. 1987) (cited with approval in QVC) the court found that a standstill agreement thatlimited a shareholder to 49.9 percent of shares and 40 percent board representation prevented application ofRevlon Duties in a takeover.

A merger of equals or minority-shareholder protections may be impractical or incompatible with the purposesof a particular strategic combination. However, for target companies housed in states with constituencystatutes, corporate boards may be able to avoid Revlon Duties by engaging in mergers that are the product oflong-term strategy. Constituency statutes upset Revlon Duties by allowing directors to define the best interestsof the corporation according to the interests of employees, customers, creditors and communities at theexpense of shareholder wealth.

Because corporate decisions must be supported by standards of rational business judgment, directors shouldtake certain precautions when negotiating and structuring strategic mergers under constituency statutes. Evenwithout the imposition of Revlon Duties, directors maintain the burden of showing that they were adequatelyinformed and acted reasonably. Directors should document and implement company strategies well in advanceof courting potential merger partners.

The board should identify specific constituencies and the nonshareholder factors involved in a strategic merger.To the extent that quantification is possible with respect to factors other than price, directors should prepareappropriate documentation for review. Directors should not stubbornly adhere to an initial merger proposal.Other suitors may be more appropriate for fulfilling a long-term strategy.

Because courts have not addressed the interplay between Revlon Duties and constituency statutes, as apractical matter, directors should not overlook shareholders. Shareholders are the only corporate constituency

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that can enforce a breach of fiduciary duty on behalf of the corporation. Nevertheless, under constituencystatutes, directors should feel free to consider a broad array of factors without focusing solely on the short-term gains of a select few.

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ABA Section of Business LawBusiness Law TodayJanuary/February 1999

It all comes down to money

Face it: A board's main goal is corporate profits

By A.A. SOMMER Jr

Sommer is counsel at Morgan, Lewis & Bockius in Washington.

Do boards of directors have a greater purpose than simply the pursuit of profit? No, this isn't a trick question.And surprisingly, the answer isn't tricky at all.

Ever since the invention of the modern corporation, there has been controversy concerning its purpose andresponsibilities. The earliest corporations were set up for specific public purposes, generally to do a publicgood, for instance, operate a toll bridge or construct some other public facility; of course, the entrepreneursexpected to make a profit from the enterprise. As the general purpose corporation became commonplace andthe organizers could organize for any legal purpose whether it served a public need or not, it became possiblefor corporations to be organized solely for the enrichment of their organizers.

As these corporations grew in size and influence, and it became apparent they could wield significant economicpower, social reformers began to insist that this power should be marshaled for the common good. Thesedemands were particularly strong during times of economic distress. Thus during the depression of the '30s the

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debate was vigorous. Its intellectual manifestation was most clearly seen in the pages of the Harvard LawReview and the Columbia Law Review where E. Merrick Dodd and Adolf A. Berle, professors respectively atHarvard and Columbia, stated opposing viewpoints. Dodd insisted that the corporation had a purpose thattranscended simply making money for shareholders; Berle took the opposite point of view.

The battle was renewed during the '80s, not because of economic misfortune, but because of the onset of thehostile tender offer. The traditional view that the directors had a fiduciary responsibility that ran solely toshareholders, save in extraordinary circumstances, seemed to many to require directors to reach for thehighest offer for the company regardless of other considerations, such as effect on employees andcommunities.

To remove the strait jacket in which they found themselves, corporations prevailed on the legislatures in some30 states to adopt legislation that would permit directors to take into account in their decision makingconstituencies and considerations beyond the shareholders. They could, for instance, take into account theinterests of employees, suppliers, customers, communities, long-term interests of shareholders as well asshort-terin interests, the interests of the state and so on. With the exception of Connecticut, there was noobligation on directors to a take into account these interests.

Some have expressed concern as to whether the privilege accorded by the statutes to take into account otherinterests transcends the fiduciary obligation of directors to shareholders except for the few states that madesure action favoring constituencies other than shareholders would be upheld.

Many contended that the directors had an obligation to the "corporation," which they interpreted to mean thatthe directors could, even without special legislation, take into account the variety of interests connoted by thatterm. To some extent, they found solace in the fact that the Delaware Supreme and Chancery Courts, as wellas courts in other states, used "shareholders" and "corporation" interchangeably and spoke of directors havingan obligation to either or both. In the United Kingdom, the Companies Act makes clear the duty of directors isto shareholders alone.

Notwithstanding the ambiguity in its use of "shareholders" and "corporation," the Delaware Supreme Court onseveral occasions has indicated clearly the primacy of shareholders. Most notably, in Mills Acquisition Co. v.Macmillan Inc. (559 A. 2d 1261, 1282, n. 29 [Del. 1989]), it stated that a board in deciding whether to acceptan offer may consider "the impact of both the bid and the potential acquisition on other constituencies,provided that it bears some relationship to general shareholder interests."

During the time that the debate was continuing with regard to "other constituencies" statutes, the AmericanLaw Institute, perhaps the preeminent body of judges, lawyers and academics concerned with the progress ofAmerican law, was considering the principles of corporate governance. In Section 2.01 of the final product ofthe project, Principles of Corporate Governance: Analysis and Recommendations, it stated that, with certainlimited exceptions for ethical and eleemosynary considerations, "...a corporation should have as its objectivethe conduct of business activities with a view to enhancing corporate profit and shareholder gain."

ALI members deliberated with regard to the conduct of directors in connection with takeovers. The advocatesof a broader perspective prevailed to some extent, so that the Principles provide that in any action to forestallan unsolicited tender offer, the directors may "take into account all factors relevant to the best interests of thecorporation and shareholders [and] may ... have regard for interests or groups (other than shareholders) withrespect to which the corporation has a legitimate concern if to do so would not significantly disfavor the long-term interests of shareholders."

Even in this formulation, there is recognition that whenever action on behalf of nonshareholder interests istaken, the primacy of shareholder interests must be ever in mind.

The fact of the matter is that American courts, American lawyers, American executives and American directorsdo put the interests of shareholders first in their thinking. This has been amply seen in recent years in whichdirectors, often acting in response to shareholder rebellion, have ousted management. It is not customers orsuppliers or communities or even employees who insisted on the dismissal of executives, but rather directorsdissatisfied with the performance of management on behalf of the shareholders. To the extent that otherfactors like dissatisfaction of employees play a role, it is concern with the impact of those factors on thebottom line that moves them to action.

Increasingly, with more and more Americans dependent on equities for their retirement (and that number willmultiply enormously if some of the proposals for Social Security reform prevail) shareholder value andcorporate performance mean more and more to more Americans.

One of the clearest difficulties of suggesting that directors should take into account a variety of interests is thesimple problem of monitoring and evaluating director and executive performance. What may appear as poor

performance from the standpoint of shareholders may on the other hand be roundly applauded by thecommunity or suppliers or employees. The simplest measure, and the one that economic America is mostaccustomed to dealing with, is simply, "How well has the corporation served investors?" It is this by which theprofessional analysts, investors, the sources of capital and ordinary shareholders judge the performance of thecorporation and determine whether its shares are an appropriate investment.

The problem of the corporation serving varied interests and directors being compelled to make difficultallocation judgments has been well stated by the Nobel Prize-winning economist, Milton Friedman. He said, "Asingle, objective goal like profit maximization is far more easily monitored than a multiple, vaguely defined goallike the fair and reasonable accommodation of all affected interests. It is easier, for example, to tell if acorporate manager is doing what she is supposed to do than to tell if a university president is doing what sheis supposed to do." In fact, if corporate directors were to allocate the resources among the many claimants onthe basis of their judgment of the merits of each claimant, or group of claimants, they would in effect bemaking political decisions.

From time to time, proposals have been made to develop a means of "social accounting" whereby acorporation's performance might be judged by measures other than solely economic performance. For instance,a value might be given to its employee relations, community attitude, relations with customers and suppliers,environmental policies and safety and health of employees. All efforts have focused on the question of how tomeasure the other elements of the equation.

Even if such a series of measures might be developed, the next problem is acceptance of them by those whohave capital to invest. So far, there has been no indication whatsoever that there are significant numbers ofinvestors who would be influenced by these considerations.

The primacy of shareholder value is no longer a unique American phenomenon. Increasingly, foreign companiesare shifting their focus from the concept of corporations as "social entities" and seeing them more as "profit-making entities" that must gain investor confidence; otherwise they will lag in the struggle for capital essentialto survival in today's economic world.

The most recent evidence of the increasing world transcendence of the primacy of shareholder value is seen inthe April 1998 report to the Organi-zation for Economic Co-operation and Development (OECD), anorganization of 29, for the most part, developed countries, by a blue-ribbon advisory group on corporategovernance. Under the caption "The Primary Corporate Objective," the report states: Most industrializedsocieties recognize that generating long-term economic profit (a measure based on net revenues that takesinto account the cost of capital) is the corporation's primary objective. In the long run, the generation ofeconomic profit to enhance shareholder value, through the pursuit of sustained competitive advantage, isnecessary to attract the capital required for prudent growth and perpetuation.

No one can read with equanimity about massive layoffs with all of the human suffering that entails reductionsin standards of living, economic hardship, family dislocations and a whole range of other undesirableconsequences. One cannot be indifferent to the fate of communities that have come to rely over the years on acorporate presence. However, this has been the history of capitalism what Joseph Schumpeter, the greateconomist, has described as the "creative destruction of capitalism." Out of the destructive dimension ofcapitalism has come creativity that carried society to new levels of well being.

This has been seen on both a macro and a micro level. On the micro level, a good example is seen in thedevelopment of the transportation industry in this country. Once river barges and stage coaches provided theprincipal means of hauling freight and people. These were succeeded by the railroads, and those who wererunning the barges and stage coaches had to seek other employment and undoubtedly in the course of thetransition businesses failed and many communities that depended on business generated by the barges andstage coaches suffered major setbacks.

On a macro basis, the industrial revolution is a good example. History records that this resulted in hugedislocations and a virtual revolution in the structure of society as countries industrialized. Many of theenterprises engaged in the old ways of production undoubtedly failed with sizable financial losses to theirowners. Their employees and their crafts were made obsolete and had to seek other, usually less fulfilling andless remunerative employment, but the new order brought immeasurable wealth and prosperity to theirprogeny and to society as a whole.

Today, we are witnessing another "macro" example of "creative destruction." As industry throughout the worldrefashions to take advantage of the computer-information revolution, we see many of the same dislocationsthat the industrial revolution brought about.

Often the rewards of this "creative destruction" are unevenly distributed, with those in the vanguard of changereaping what appears to many (and with good reason in many cases) to be excessive benefits. Witness the

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compensation levels and the wealth generated for the owners and managers of computer-related enterprisesas we make the transition from an industrial economy into an information-oriented economy.

No one can doubt that the emphasis by American management on shareholder value driven by foreigncompetition, the threat of takeovers, shareholder pressure and activist boards has been the key ingredient ofthe continued phenomenal success of American industry in this decade. Enterprises that lagged in their returnto shareholders soon found themselves under awesome pressure to improve performance, and if they failed,they were often absorbed by other enterprises or fell by the wayside.

The struggle for capital is now worldwide, with enterprises in every country, in every region, along withAmerican enterprises, all seeking to tap the same wells of capital. In every case, the suppliers of capital wantthe highest possible return commensurate with risk. If the expected return from an investment in an enterprisewill be inadequate in relation to other opportunities, then capital will go where the promise of return is thegreatest and no amount of largesse to employees, communities, suppliers or customers is going to make adifference.

In the final analysis, of course, managements are not indifferent to other constituencies. Their commitment toshareholder value demands that they be sensitive to their workforce, its training, its quality, its morale, and tothe relationships with customers and suppliers, and with the community. A deficiency in the relationship withany of these can adversely affect return on capital. So the question is not whether management and directorsshould favor other constituencies over shareholders, but how well they can use those relationships to advancethe interests of shareholders.

During the height of the tender offer phenomenon in the '80s, the question was often asked whether directorsand management should be concerned with the short-term interests of shareholders or their long-terminterests. The issue was framed in terms of a huge premium upfront to buy a company versus the prospect ofgreater gains over the long run if the enterprise remained independent. Some court rulings suggested thatdirectors had as much responsibility to the short-term speculators as to the long-term investors. With someencouragement from the Delaware Supreme Court, it is fair to say that that issue has been resolved and mostcommentators, executives, directors, analysts and others would say that the primary responsibility of themanagement and directors of an enterprise is the long-term value of the enterprise.

The concept of the primacy of shareholder value strikes many and not just academics as heartless and unfair,ignoring the "investment" made by employees who commit years of service to a company, communities thatbuild facilities to accommodate employees and their families, suppliers who depend on a particular enterprise.Unfortunate as the consequences of adherence to shareholder value as the goal of corporate enterprise oftenmay be, there is ample evidence that this commitment has served society at large well.

It has provided a meaningful measure of the manner in which society's resources owned by corporations areused, and has provided the incentive for the maximization of their use. Moreover, other constituencies haveavailable, and have used, various means to protect themselves from adversities brought on by the effort tomaximize shareholder value. As an example, labor enters into contracts, suppliers cultivate multiple customers,communities attract other enterprises to avoid dependence on a single employer.

In short, management and directors who seek to maximize shareholder return create wealth that benefits theentire community. Experience teaches that, and throughout the world that experience is leading to newopportunities and the promise of better days.

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ABA Section of Business LawBusiness Law TodayJanuary/February 1999

Protecting the deal in an auction

Contract rights vs. corporate control

By GREGORY V. VARALLO and ROD J. HOWARD

Varallo is a director of Richards, Layton & Finger, P.A. of Wilmington, Del. Howard is a director in the Palo AltoCalif. office of Gray Cary Ware & Freidenrich. One or both of the authors and their firms served as counsel inseveral of the cases discussed in this article, and the views expressed are solely those of the authors, and notthe views of their firms or their clients. The authors wish to thank Leanne J. Reese of the Delaware bar for herassistance in preparing this article.

Bidding contests for control of public companies appear to have grown both in frequency and intensity over thepast year. Fiduciary law principles in the context of an "auction" for control, the development of which appearedto stagnate in the early part of this decade, once again are being developed in the courts.

Unlike the earlier case law development of so-called "auction" principles, which appeared to focus on fiduciaryprinciples to the virtual exclusion of contract rights, however, recent case law appears to attempt to strike amore rational balance between fiduciary obligations and contract rights. As the courts attempt to balancecontract rights and fiduciary duties in the context of auctions, they are actually balancing the rights ofshareholders to receive the best available price with the contract rights of a bidder. The authors believe that

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recent attempts to more carefully strike a balance between these two competing interests is highly desirable.

It is useful to put recent case law developments in context. Delaware courts (where much of the "auction" lawhas been developed) have long enforced the principle that a fiduciary engaged in the sale of trust assets has aduty to maximize the price received for those assets. That such a principle would be applied to the sale ofcontrol of a corporate enterprise seems, in hindsight, rather self-evident.

When the principle was announced in the Revlon Inc v. MacAndrews & Forbes Holdings Inc., 506 A.2d 173 (Del.1986), however, it sent shock waves through the legal and financial communities and led to extensive scholarlydebate. Cases following Revlon expounded on the nature of the duties implicated and focused intensely on thequestion of precisely when the duties announced there were triggered.

Of greater interest here, however, is that many of the early "Revlon" cases also addressed the contract rightsof jilted bidders. The result was disappointing, at least from the perspective of the bidders. For example, in theRevlon case itself, the merger agreement provided Forstmann Little with a lock-up option to purchase certainassets of Revlon and a $25 million "break-up" fee in the event the company accepted a higher bid.

After concluding that the lock-up option was the result of a breach of fiduciary duty by the target directors, theCourt of Chancery enjoined both the lock-up and the break-up fee stating that "[t]he link between the escrowof the lock-up assets and the cancellation fee suggests, however, that Forstmann Little and Revlon consideredthe two as combined security to secure the exclusion of Pantry Pride from further participation." MacAndrews &Forbes Holdings Inc. v. Revlon Inc., 501 A.2d 1239, 1252 (Del. Ch. 1985). The Supreme Court affirmed thisdecision with almost no analysis of the break-up fee.

The decisions affecting Forstmann Little's rights dwelt almost exclusively on the Revlon board's breach of itsfiduciary duties to its shareholders, and contained very little, if any, analysis of the rights of the contract partythat sought to enforce its right to its agreed break-up fee. While equity has long been prepared to enjoin therights of a third party that is knowingly complicit in a breach of fiduciary duty (so called "aider and abettorliability"), the Revlon decision and its progeny, to the extent they affect third parties' rights, appear to stand ononly this legal basis for invalidating the contract rights of third parties.

Subsequent contract parties fared little better in the courts. For example, in In re Holly Farms ShareholdersLitigation, C.A. No. 10350 (Del. Ch. Dec. 30, 1988), a termination fee of $15 million and expensereimbursement provisions were "enjoined so that the board may carry out its duties under Revlon to maximizeshareholder value." Id. at 17. Almost no attention was paid to the rights of third parties in the decisionenjoining the payment of the fee, and the jurist deciding the case appeared to justify his interference with thethird party's rights solely on the basis that the court had an (unspoken but overriding) duty to the stockholdersof Holly Farms to help them achieve the best possible price for their shares.

These issues have been addressed outside Delaware, as well. In ConAgra Inc. v. Cargill Inc., 382 N.W.2d 576(Neb. 1986) a divided Nebraska Supreme Court addressed the right of a jilted bidder to collect damages for analleged breach of a "best efforts" clause in a merger agreement, and a contractual undertaking to hold ashareholders' meeting. Holding that the directors of the target corporation "could not" pledge their best effortsto consummate a transaction if doing so violated their fiduciary duties to shareholders, the court reversed thetrial court's grant of summary judgment in favor of the jilted bidder and ordered the case dismissed.

Three judges dissented, arguing that the target board's fiduciary duty was met by allowing the shareholders todecide whether they preferred the (nominally) higher all-cash offer of the second bidder, or the tax-freeexchange of stock offered by the first. Putting the issue in this perspective, the dissent argued that holding thetarget to its best efforts and meeting obligations did not do violence to any fiduciary duty. By reconciling thecontractual and fiduciary responsibilities, the dissent argued that the trial court's disposition of the matter wasessentially correct, giving meaning to the contract while enhancing certainty among arms' length contractingparties.

Perhaps the "high water" mark in this area came in the Delaware Supreme Court's decision in

Paramount v. QVC, 637 A.2d 34 (Del. 1993), which denied a disgruntled bidder's claim that it had certain"vested" contract rights in a no-shop provision and an option-rights agreement. These purported contractrights were extremely valuable. At the time of the decision, the voided option rights were worth some $500million. The court said that the bidder had no "vested" contract rights to enforce, and went so far as toannounce the rule that a contract that was the product of a breach of fiduciary duties was not merely voidablebut void, a nullity ab initio.

The court's treatment of the disappointed bidder in QVC did not extend to the invalidation of its $100 milliontermination fee, but perhaps only because none of the parties had appealed the failure of the Court ofChancery to enjoin the provision. Indeed, the Supreme Court appeared to suggest that it may well have

treated that fee differently than the trial court if it had been before the court on appeal.

Against this backdrop, and during the same time, the same courts were generally more solicitous of contractrights where the transaction involved not a sale of control but instead a strategic combination. In 1989, forexample, the Delaware Court of Chancery determined not to enjoin the exercise of reciprocal stock options inthe original Time-Warner merger transaction even when challenged by an all-cash bidder offering a pricearguably higher than that offered in the merger. Paramount Communications Inc. v. Time Inc., C.A. Nos.10670, 10866 (Del. Ch. June 9, 1989).

Likewise, the courts have routinely upheld reasonable termination fees against stockholder challenges and theDelaware Supreme Court itself, not long after deciding the QVC v. Paramount case, upheld a $550 milliontermination fee in the Bell Atlantic-NYNEX strategic merger. Brazen�v. Bell Atlantic Corp., 695 A.2d 43, 50(Del. 1997). Until very recently, however, decisions upholding contract rights in the "auction" context wereextremely rare, or nonexistent and the pace of auction litigation appeared to have slowed significantly.

It is against this background that several recent decisions appear. These decisions may signal a new and morebalanced approach to contract rights, including those that are asserted in the auction context.

In The Kontrabecki Group Inc. v. Triad Park LLC, C.A. No. 16256 (Del. Ch. Mar. 17, 1998), Triad Park, LLC, aDelaware limited liability company holding valuable real estate in the San Francisco Bay area, had entered intoa contract to merge with an affiliate of an international real estate developer, The Kontrabecki Group Inc(TKG). The contract between Triad and TKG was struck after a long and active auction process conducted byTriad Park, and only after an earlier bidder was unable to complete a merger transaction prior to the "dropdead date" in its contract with the company.

The merger agreement subsequently entered into between Triad and TKG included a "no shop" clause thatprohibited, among other things, the termination of the merger transaction absent a "superior proposal" asdefined in the contract. In particular, the TKG/Triad merger agreement required that in order to qualify as a"superior proposal," not only did the competing bid have to be economically superior, but also unconditionedand fully financed prior to its acceptance by the Triad board — i.e., a "definitive unconditioned agreement ...for which financing, to the extent required, is then committed."

The merger agreement also called for the Triad Park board to recommend the transaction to shareholders andto use its best efforts to hold a shareholders' meeting by a date certain. After TKG had mailed its proxymaterials to Triad shareholders containing the Triad board's recommendation, and just days before thescheduled vote on the merger, the original contract party re-emerged and announced an apparently unfinancedoffer for all shares at a price substantially higher than that offered in the TKG contract and on substantiallyidentical terms.

Asserting (incorrectly, it turned out) that the new bid was a "superior proposal" as defined in the mergeragreement, the Triad Park board sent a notice under the contract triggering its right to terminate the mergeragreement five business days later in order to accept the "superior proposal."

TKG, now in the role of a potentially disappointed bidder, sued immediately to enjoin the impendingtermination, arguing that the contract required any "superior proposal" to be both financially superior and fullyfinanced. The contract also required Triad Park to hold a shareholder meeting and to recommend the TKGmerger, except on receipt of a "superior proposal." Since the new bidder did not appear to have committedfinancing in place at the time it made the proposal that the board sought to accept, TKG argued that the targetboard had no right to terminate the contract or cancel the imminently scheduled shareholder meeting to voteon the merger.

The court agreed and granted a restraining order that both prohibited the board from terminating the mergeragreement based on the allegedly nonconforming "superior proposal" and also prohibited any attempt to cancelthe impending shareholders' meeting. Finally, the court exercised its equitable powers to require the targetboard (over strenuous objection) to disseminate immediately to shareholders pertinent information relating tothe proposals received, TKG's written responses to the proposals, and the litigation, including the court'sdisposition of the claims for injunctive relief.

In a ruling that created a result strikingly similar to that advocated by the ConAgra dissenters, the courtattempted to strike a careful balance between TKG's rights to enforce its contract and the board's apparentobligation to optimize price in a sale of control. The fulcrum of this balance was the opportunity to allow a fullyinformed shareholder body to consider and act on a fully financed, firm merger agreement or to withhold theirvotes in the hope that the second bidder would eventually find sufficient financing to proceed with its proposedbid. The court focused on the importance of the agreement between the parties, stating that: [T]he problemwith [the defendant's] argument is to denigrate the significance of a contract. What we have is a firmly wordedmerger agreement and rights the parties have under that agreement, which would include, under the correct

factual and legal record anyway, the option of specifically performing that contract in accordance with yourearlier agreement.

* * * I don't know how the fiduciaries could be terribly troubled with a process that puts both thesealternatives in the true light of how they appear and appeared before them, before the shareholders for whomthey would otherwise act, and ask those shareholders to act based on a fully informed basis. It seems to methat's ultimately what we want in all instances anyway.

Transcript at 43-44. The parties to the lawsuit did not argue, and the facts did not support, any conclusion thatthe TKG/Triad merger contract was the fruit of any breach of duty by the Triad Park board. In fact, as notedabove, the contract was entered only after an active bidding process in which TKG had topped the bidpreviously submitted by the first and (apparently) favored bidder, and then only after the first bid wasterminated by Triad Park after the "drop dead date" in the merger agreement.

The fact that the court was willing to enforce the contract rights of a lower bidder suggests an important shiftin judicial focus from fiduciary duties to contract rights. Where previous cases appear to suggest that a boardfaced with even an arguably higher bid must accept that bid, regardless of whether doing so createscontractual liability, the Triad Park court broke new ground by attempting to balance the contract rights of thebidder in contract against the target board's protestations of impotence in the face of its fiduciaryresponsibilities to shareholders. In fact, the court's careful and judicious use of its equitable powers to orderlast-minute dissemination of supplemental proxy materials informing shareholders of late-breakingdevelopments and the parties' positions with respect to the late bidder's lack of financing allowed theshareholders to choose which of the two proposals they preferred. As an economist might well have predicted,the Triad shareholders chose to keep the auction going by voting against the TKG merger. Happily for TKG, thestory ended with another round of bidding, which TKG again won, this time closing its transaction.

Perhaps the TKG case was factually driven, even sui generis. The fact that the court was willing to attempt tobalance a contract party's rights in the auction context, however, is an important new development and shouldrevive the temporarily moribund debate regarding the value and importance of negotiating provisions of thissort in the context of an outright sale of control.

At roughly the same time that the Court of Chancery was deciding the Triad Park case, the same court declinedto intervene in another auction contest that had clearly been tilted in favor of a bidder. In American BusinessInfo. Inc. v. Faber, C.A. No. 16265-NC (Del. Ch. Mar. 27, 1998), the merger contract between the target andits favored bidder effectively allowed that bidder a two-day window after the deadline for submission of bids inwhich to top any bid submitted by another suitor, which had advised the target of its intention to bid higherthan the first bidder and to top by $.25/share any further bid made by that party.

Asked to "level the playing field" between the two bidders and to enjoin the exclusive topping right of the firstbidder, the Delaware Chancellor demurred. The court found both a substantial risk that enjoining the existingtransaction could lead to the loss of a firm deal for shareholders, and a lack of probable success on the merits.Holding that the record demonstrated that the board had made an honest attempt to maximize value indesigning the auction, the court did not expressly rule based on contract law. The result of the court's ruling,however, was to leave intact the challenged contract provisions.

The court seemed little moved by the second suitor's promise to top any bid submitted by the favored bidderby $.25/share, even though a strikingly similar fact pattern appeared to weigh heavily on the Revlon court inmaking its decision to enjoin a transaction in the face of the second bidder's announced intent to top any offermade by its rival.

Following the trial court's ruling, the parties engaged in further bidding. In light of substantial further factualdevelopments following the preliminary injunction hearing, the Delaware Supreme Court declined to hear ABI'sappeal.

While neither Triad Park nor American Business Info. resulted in written opinions or were subject to appellatereview, the cases appear to signal the beginning of a critical re-examination of contract rights asserted in theface of competing fiduciary principles. While the last word on the subject certainly has not been written, it doesappear that the Delaware Court of Chancery may be more willing to consider seriously arguments made bythose holding contract rights in the face of fiduciary law challenges to the enforcement of those rights.

At the very least, it now appears as though the court will no longer merely gloss over such arguments,assuming that, in all cases, the interests of stockholders must necessarily prevail over the interest of contractparties. The tension between these two areas of the law is far from resolved, however. What we may bewitnessing is the beginning of a pendulum swing in favor of more serious consideration for the rights ofcontract parties. Indeed, recent cases may mark the beginning of a trend toward more careful attention to"deal protection" mechanisms in merger agreements and similar contracts.

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myABA | Log OutWelcome, Graham

ABA Section of Business LawBusiness Law TodayNovember/December 1998

Section Calendar. . .

JANUARY

FEBRUARY

Consumer Financial ServicesCommittee meeting

Jan. 7-10Village at Breckenridge Resort

Breckenridge, Colo.

New Sec Professional Misconduct RulesBusiness Law Forum

Jan. 13(Cosponsored by Section of Litigation)

Cyberspace LawCommittee meeting

Jan. 14-17The Renaissance Atlanta Hotel Downtown

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Atlanta

Small BusinessCommittee meeting

Jan. 20-22Ritz-Carlton San JuanSan Juan, Puerto Rico

ABA Midyear MeetingFeb. 3-9

Century Plaza Los Angeles

New Employee Benefit Changes for 1999Satellite seminar

Feb. 11Multiple locations

(Cosponsored by sections of Health Law, Labor and Employment Law, Real Property, Probate andTrust Law, Taxation and Tort and Insurance Practice)

Employee Benefits Aspects of Mergers and AdquisitionsBusiness Law Forum

Feb. 16(Cosponsored by Section of Litigation)

Securities LitigationNational Institute

Feb. 22-23San Francisco

(Cosponsored by Section of Litigation)

MARCH

APRIL

IRS Determination LettersSatellite seminar

March 11Multiple locations

(Cosponsored by sections of Health Law, Labor and Employment Law, Real Property, Probateand Trust Law, Taxation and Tort and Insurance Practice)

Managed Care National Institute

March 11-14Marina del Rey, Calif.

(Cosponsored by sections of Health Law, Real Property, Probate and Trust Law, Taxation and Tortand Insurance Practice)

Outsourcing and Leased Employees--Avoiding LitigationBusiness Law Forum

March 16(Cosponsored by Section of Litigation)

E-mail and Record Retention Policy: Protecting Future Discovery Business Law Forum

April 14(Cosponsored by Section of Litigation)

BLS Spring MeetingApril 14-18

Argent Hotel and Sheraton Palace Hotel San Francisco

Employee Benefits in Mergers and AcquisitionsNational Institute

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ABA Section of Business LawBusiness Law TodayJanuary/February 1999

Index to feature articles

Our third index, covering 1996-1998

And now comes the third time that Business Law Today presents an index of articles and columns published inthe magazine. So as not to consume an unwieldy amount of space, whenever we publish an index, it covers atwo-year period and is not cumulative covering the magazine’s entire history.

The publication began in March of 1992. The index of the first two years was published in March-April 1994.The index of the next two years ran in July-August 1996.

The index this time around covers material published in issues from July-August 1996 through November-December 1998.

Of course we owe a big debt of gratitude to our compiler, Katherine C. Morgan, an associate at Katten Muchin &Zavis in Chicago.

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FEATURE ARTICLESABA Insurance Issues Small Business Alternative Dispute Resolution Intellectual Property TaxationAntitrust Law International Telecommunications Industry Bankruptcy Labor and Employment UCC

Career/Training Law Firms White Collar Criminal Liability Commercial Finance/Commercial TransactionsLaw Schools DEPARTMENTS/COLUMNS

The Computer Wizard Corporate Governance Litigation The Section's Experts Speak Corporate LawDepartments Mergers and Acquisitions From a Distance... Courts Miscellaneous Index Cyberspace

Personal Profiles Joint Ventures Employee Benefits and Executive Compensation ProfessionalResponsibility Legal-ease Environmental Law Public Interest/Public Service Pro bono defined Health Care

Law Securities

Feature Articles

ABA

No matter what your specialty, there’s a role in the BLSHowell, LynnJuly-August 1996Vol. 5, No. 6, p. 43

How I came to the BLS and never leftMilroy, MegJuly-August 1996Vol. 5, No. 6, p. 44

Why should I take the plunge?Howell, LynnJuly-August 1996Vol. 5, No. 6, p. 47

Going corporate with the Business Law SectionWhat It can mean for your legal departmentDeMuth, JerryMarch-April 1997Vol. 6, No. 1, p. 55(see also: Corporate Law Departments)

ABA groups don’t agreeMillner, Robert B.January-February 1998Vol. 7, No. 3, p. 42(see also: Bankruptcy)

Our man in DelawareRecent section chair now chairs that state’s highest courtChon, GinaMarch-April 1998Vol. 7, No. 4, p. 40(see also: Personal Profiles)

Business Law Section financial reportMarch-April 1998Vol. 7, No. 4, p. 58

60 years of strengthThe section celebrates a birthday: 1938-1998Francis, Merrill R.July-August 1998Vol. 7, No. 6, p. 1

A Section chair looks backPoscover, Maury B.July-August 1998Vol. 7, No. 6, p. 43

Section standouts: association man!September-October 1998Vol. 8, No. 1, p. 57(see also: Personal Profiles)

Section of Business Law 1998-1999November-December 1998Vol. 8, No. 2, p. 60

ALTERNATIVE DISPUTE RESOLUTION

A clause you don’t want to overlookThe Supreme Court enforces arbitration in commercial contractsWilburn, Kay O.November-December 1996Vol. 6, No. 2, p. 55

Clauses for dealing with ADRHenry, William O.E.January-February 1997Vol. 6, No. 3, p. 16

ADR in the workplaceHow it works when an employee is upsetKipperman, Lawrence I. and Lotsoff, JonathanMarch-April 1997Vol. 6, No. 4, p. 42

Grabbing the bull by the hornsTaurus: The future of arbitration in securities disputes?Clemente, Robert S. and Kupersmith, KarenMay-June 1997Vol. 6, No. 5, p. 18(see also: Securities)

Arbitration, as seen by the Supreme CourtClemente, Robert S. and Kupersmith, KarenMay-June 1997Vol. 6, No. 5, p. 20(see also: Securities)

Excuse me, but who’s the predator?Banks can use arbitration clauses as a defenseKaplinsky, Alan S. and Levin, Mark J.May-June 1998Vol. 7, No. 5, p. 24(see also: Litigation)

ANTITRUST LAW

Let the battle beginGoal of ’96 Communication Act is to foster competitionWadlow, R. Clark and Parker, Rosalind M.September-October 1996Vol. 6, No. 1, p. 10(see also: Telecommunications Industry)

When the bottom line is a look-alikeHealth care and antitrust lawWestrup, David A.July-August 1997Vol. 6, No. 6, p. 20(see also: Health Care Law)

Merger maniaHow a business lawyer can assist antitrust counsel

Chin, Yee WahMarch-April 1998Vol. 7, No. 4, p. 32(see also: Mergers and Acquisitions; Corporate Law Departments)

Microsoft: IBM reduxIs its journey through the courts a bumpy road or just another bend on the information superhighway?Disner, Eliot G.September-October 1998Vol. 8, No. 1, p. 8(see also: Cyberspace)

BANKRUPTCY

Can bankruptcy trump an escrow?A primer on enforceabilityMears, Patrick E.September-October 1996Vol. 6, No. 1, p. 40

Bankruptcy by the budgetKeeping costs under control in multimillion-dollar casesFelderstein, Steven H., Feldman, Milton A. and Marcus, Harold J.May-June 1997Vol. 6, No. 5, p. 38(see also: Corporate Law Departments)

A breath of fresh air for bankruptcyAn uncommon woman finds the common manChon, GinaSeptember-October 1997Vol. 7, No. 1, p. 18(see also: Personal Profiles)

Bankruptcy under scrutinyBaillie, James L.January-February 1998Vol. 7, No. 3, p. 24

Is ‘incorporation venue’ a good thing?YesHeidt, Kathryn R.January-February 1998Vol. 7, No. 3, p. 26

Is ‘incorporation venue’ a good thing?NoMillner, Robert B.January-February 1998Vol. 7, No. 3, p. 26

The slippery slope to bankruptcy: Should some claimants get a ‘carve-out’ from secured credit?Yes: Reserve a cushion of free assets for unsecured creditorsWoodward, William J. Jr.January-February 1998Vol. 7, No. 3, p. 32(see also: Commercial Finance/Commercial Transactions; Uniform Commercial Code)

The slippery slope to bankruptcy: Should some claimants get a ‘carve-out’ from secured credit?No: It’s a populist craving for a petit bourgeois valhallaWhite, James J.January-February 1998Vol. 7, No. 3, p. 32(see also: Commercial Finance/Commercial Transactions; Uniform Commercial Code)

What is the ‘carve-out’ and where does it stand?Woodward, William J.January-February 1998Vol. 7, No. 3, p. 35(see also: Commercial Finance/Commercial Transactions; Uniform Commercial Code)

ABA groups don’t agreeMillner, Robert B.January-February 1998Vol. 7, No. 3, p. 42(see also: ABA)

When debt comes crashing downAre ‘reaffirmation agreements’ a good thing?Williams, Ernest B. IVSeptember-October 1998Vol. 8, No. 1, p. 48

Are you really disinterested?Chapter 11 presents real problems in ethicsFrost, Christopher W.November-December 1998Vol. 8, No. 2, p. 24(see also: Professional Responsibility)

Two groups’ views on being disinterestedFrost, Christopher W.November-December 1998Vol. 8, No. 2, p. 26(see also: Professional Responsibility)

CAREER/TRAINING

What does it take?Hallmarks of the business lawyerSargent, Mark A.July-August 1996Vol. 5, No. 6, p. 11

Measuring upMaybe you need a skills listWoods, Patricia AnneJuly-August 1996Vol. 5, No. 6, p. 16

Before making a skills listWoods, Patricia AnneJuly-August 1996Vol. 5, No. 6, p. 18

Beyond skills to ... talentWoods, Patricia AnneJuly-August 1996Vol. 5, No. 6, p. 20

Making the most of a skills listWoods, Patricia AnneJuly-August 1996Vol. 5, No. 6, p. 21

To market to marketYour goal is visibilityNeal, David C.July-August 1996Vol. 5, No. 6, p. 26

Be proud of what you doAvoiding professional pitfallsValihura, Karen L.July-August 1996Vol. 5, No. 6, p. 32(see also: Professional Responsibility)

So ... how ya doin’?Business lawyers talk about their career expectations and realitiesSanchez, KimberlyNovember-December 1996Vol. 6, No. 2, p. 43

A time to reap ...A dozen surefire signs that you’re ready to retireFreund, James C.November-December 1997Vol. 7, No. 2, p. 12

COMMERCIAL FINANCE/COMMERCIAL TRANSACTIONS

Updating the UCCRevisions in the works affect consumersGabriel, Henry D. and Barski, Katherine A.September-October 1996Vol. 6, No. 1, p. 16(see also: Uniform Commercial Code)

Licensing in a New AgeContracts, computers and the UCCMaher, Terrence P. and Milroy, Margaret L.September-October 1996Vol. 6, No. 1, p. 22(see also: Cyberspace; Uniform Commercial Code)

The in-betweenerVenture-capital lawyers pair investors with entrepreneursWoolsey, TerryNovember-December 1996Vol. 6, No. 2, p. 14(see also: Small Business)

When assets become securitiesThe ABC’s of ssset securitizationSoukup, Lynn A.November-December 1996Vol. 6, No. 2, p. 20(see also: Uniform Commercial Code)

Doing the deal overseasHow to structure international project financingForry, John I.November-December 1996Vol. 6, No. 2, p. 24(see also: International)

Riding herd on the muni marketThe deputy director of the SEC’s office of municipal securities speaks outGolden, Susan M.November-December 1996Vol. 6, No. 2, p. 29(see also: Securities)

When the lender calls the tuneThe inevitable tension of financial covenantsKaufman, Arthur S., Vartanian, Thomas P. and Jarvis, Diana

November-December 1996Vol. 6, No. 2, p. 34(see also: Corporate Law Departments)

Getting personalWhat if the banker needs a loan guarantee beyond the assets of the business?Gardner, LawrenceMay-June 1997Vol. 6, No. 5, p. 42(see also: Corporate Law Departments)

Those third-party opinionsCan loan-transaction costs be reduced?Mason, David M. and Snider, Debra H.September-October 1997Vol. 7, No. 1, p. 48(see also: Corporate Law Departments)

The slippery slope to bankruptcy: Should some claimants get a ‘carve-out’ from secured credit?Yes: reserve a cushion of free assets for unsecured creditorsWoodward, William J. Jr.January-February 1998Vol. 7, No. 3, p. 32(see also: Bankruptcy; Uniform Commercial Code)

The slippery slope to bankruptcy: Should some claimants get a ‘carve-out’ from secured credit?No: it’s a populist craving for a petit bourgeois valhallaWhite, James J.January-February 1998Vol. 7, No. 3, p. 32(see also: Bankruptcy; Uniform Commercial Code)

What is the ‘carve-out’ and where does it stand?Woodward, William J.January-February 1998Vol. 7, No. 3, p. 35(see also: Bankruptcy; Uniform Commercial Code)

Banks enter a new ageDo their products come under the Commodity Exchange Act?Selig, Stephen F.July-August 1998Vol. 7, No. 6, p. 54

How Y2K could affect the supply chainA problem for day-to-day contractsCohn, Donald A. and Wittman, Paul S.September-October 1998Vol. 8, No. 1, p. 36(see also: Corporate Law Departments; Cyberspace; Small Business)

Lock and loadDocument security on the NetHill, JamesNovember-December 1998Vol. 8, No. 2, p. 8(see also: Cyberspace)

Telecommuting: It’s a tossupPracticing law at home can be good and not so goodTongue, KathrynNovember-December 1998Vol. 8, No. 2, p. 16(see also: Cyberspace; Labor and Employment)

Setting up a home office

Tongue, KathrynNovember-December 1998Vol. 8, No. 2, p. 18(see also: Cyberspace; Labor and Employment)

Going with the cash flowGet to know this crucial factor in communications dealsTannenbaum, Frederic D.November-December 1998Vol. 8, No. 2, p. 32(see also: Telecommunications Industry)

Making deals in ChinaWhat you’ll find; how it’s doneVandegrift, Benjamin M.November-December 1998Vol. 8, No. 2, p. 40(see also: International)

CORPORATE GOVERNANCE

It’s a private matterWhat should a closely held company keep in mind when issuing a tender offer?Berick, Daniel G.September-October 1996Vol. 6, No. 1, p. 47(see also: Securities)

When minutes countWhat a corporate secretary should keep in mindGale, Connie R.January-February 1997Vol. 6, No. 3, p. 36

Putting the record straight: one approachGale, Connie R.January-February 1997Vol. 6, No. 3, p. 38

Filling the gaps in D&O insurancePart II in a continuing saga of negotiating your client’s coverageWeiss, Stephen J.January-February 1997Vol. 6, No. 3, p. 44(see also: Corporate Law Departments; Insurance Issues)

Targeting the boardWhat’s their liability for risk assessment?Dumas, Dennis R.May-June 1997Vol. 6, No. 5, p. 30

Holding directors liableDumas, Dennis R.May-June 1997Vol. 6, No. 5, p. 32

It points to the boardDumas, Dennis R.May-June 1997Vol. 6, No. 5, p. 33

Not just about derivativesDumas, Dennis R.May-June 1997

Vol. 6, No. 5, p. 34

A clean recordDevelop a system for dealing with corporate informationDietel, J. EdwinJanuary-February 1998Vol. 7, No. 3, p. 58(see also: Corporate Law Departments)

Rating a records-management programDietel, J. EdwinJanuary-February 1998Vol. 7, No. 3, p. 60(see also: Small Business)

Straight are the gatesHow to structure an independent compensation committeeDrapkin, Dennis B. and Rorimer, LouisJuly-August 1998Vol. 7, No. 6, p. 44(see also: Employee Benefits and Executive Compensation)

CORPORATE LAW DEPARTMENTS

When pruning is in orderDuPont takes a new look at the corporate-outside counsel relationshipMahoney, DanielJuly-August 1996Vol. 5, No. 6, p. 48(see also: Law Firms)

When the lender calls the tuneThe inevitable tension of financial covenantsKaufman, Arthur S., Vartanian, Thomas P. and Jarvis, DianaNovember-December 1996Vol. 6, No. 2, p. 34(see also: Commercial Finance/Commercial Transactions)

Filling the gaps in D&O insurancePart II in a continuing saga of negotiating your client’s coverageWeiss, Stephen J.January-February 1997Vol. 6, No. 3, p. 44(see also: Corporate Governance; Insurance Issues)

Hands on at headquartersBank of America tells how its legal department deals with litigationRoethe, James N.March-April 1997Vol. 6, No. 4, p. 8(see also: Litigation)

The ins and outs of a relationshipHow law firms can work with corporate counselBarron, Harold S.March-April 1997Vol. 6, No. 4, p. 14(see also: Law Firms)

Staying competitiveBarron, Harold S.March-April 1997Vol. 6, No. 4, p. 16

What does ‘in confidence’ mean?Secrets, confidentiality and the in-house lawyer

Kalish, Stephen E.March-April 1997Vol. 6, No. 4, p. 18(see also: Professional Responsibility)

What do the rules say?Kalish, Stephen E.March-April 1997Vol. 6, No. 4, p. 20(see also: Professional Responsibility)

Going in-house with intellectual propertyWhat it means; why you need a strategyLiang, J. MayMarch-April 1997Vol. 6, No. 4, p. 36(see also: Intellectual Property)

Bringing it insideContract management in a corporate settingVaiden, Kristi L.March-April 1997Vol. 6, No. 4, p. 46

Going corporate with the Business Law SectionWhat it can mean for your legal departmentDeMuth, JerryMarch-April 1997Vol. 6, No. 1, p. 55(see also: ABA)

Bankruptcy by the budgetKeeping costs under control in multimillion-dollar casesFelderstein, Steven H., Feldman, Milton A. and Marcus, Harold J.May-June 1997Vol. 6, No. 5, p. 38(see also: Bankruptcy)

Getting personalWhat if the banker needs a loan guarantee beyond the assets of the business?Gardner, LawrenceMay-June 1997Vol. 6, No. 5, p. 42(see also: Commercial Finance/Commercial Transactions)

Those third-party opinionsCan loan-transaction costs be reduced?Mason, David M. and Snider, Debra H.September-October 1997Vol. 7, No. 1, p. 48(see also: Commercial Finance/Commercial Transactions)

A clean recordDevelop a system for dealing with corporate informationDietel, J. EdwinJanuary-February 1998Vol. 7, No. 3, p. 58(see also: Corporate Governance)

Merger maniaHow a business lawyer can assist antitrust counselChin, Yee WahMarch-April 1998Vol. 7, No. 4, p. 32(see also: Antitrust Law; Mergers and Acquisitions)

Breaking new groundHow corporate pro bono can workHackett, SusanMay-June 1998Vol. 7, No. 5, p. 50(see also: Public Interest/Public Service)

Delivering legal servicesPoscover, Maury B.July-August 1998Vol. 7, No. 6, p. 23

Law firms and legal departments: Can’t we all get along?From the outside, looking inHenning, Joel F.July-August 1998Vol. 7, No. 6, p. 24(see also: Law Firms)

Law firms and legal departments: Can’t we all get along?From the inside, looking outChaykin, ArthurJuly-August 1998Vol. 7, No. 6, p. 25(see also: Law Firms)

A plea for understandingWhether you’re in-house or outside, the client wants you to know their businessSneider, SusanJuly-August 1998Vol. 7, No. 6, p. 38(see also: Law Firms)

How Y2K could affect the supply chainA problem for day-to-day contractsCohn, Donald A. and Wittman, Paul S.September-October 1998Vol. 8, No. 1, p. 36(see also: Commercial Finance/Commercial Transactions; Cyberspace; Small Business)

Year 2000 compliance checklistVartanian, Thomas P.September-October 1998Vol. 8, No. 1, p. 45(see also: Cyberspace)

COURTS

New York creates business courtsIf they can make it there, can they make it anywhere?Haig, Robert L.September-October 1996Vol. 6, No. 1, p. 32(see also: Mergers and Acquisitions)

Business courts on the moveBrandel, Roland E. and Haig, Robert L.September-October 1996Vol. 6, No. 1, p. 35(see also: Mergers and Acquisitions)

CYBERSPACE

Licensing in a new ageContracts, computers and the UCCMaher, Terrence P. and Milroy, Margaret L.

September-October 1996Vol. 6, No. 1, p. 22(see also: Commercial Finance/Commercial Transactions; Uniform Commercial Code)

Regulation for a new worldAn SEC commissioner talks about capital formation in the age of the InternetWallman, Steven M.November-December 1996Vol. 6, No. 2, p. 8(see also: Securities)

Angels on the Internet for small companiesFlowers, Michael E.September-October 1997Vol. 7, No. 1, p. 1(see also: Small Business)

But is that new software worth it?Toews, J. ChristopherJanuary-February 1998Vol. 7, No. 3, p. 12(see also: Small Business)

Casting the NetElectronic cash just waiting to be caught?Henderson, KyMarch-April 1998Vol. 7, No. 4, p. 8

Welcome to the WebPointers for setting up a site of your ownLittle, Caroline H.March-April 1998Vol. 7, No. 4, p. 14(see also: Securities)

Rein in that technologyGetting a handle on the hardware to deliver the goodsClark, Norman K.July-August 1998Vol. 7, No. 6, p. 32

Managing change: 9 winning waysBriscoe, David G. and Clark, Norman K.July-August 1998Vol. 7, No. 6, p. 34

Trapped on the WebYour office and Web site are in Honolulu, but they’re hauling you into court in Fairbanks.Willard, Mark A.July-August 1998Vol. 7, No. 6, p. 50

Don’t get too comfy with that home pageSecurities-law implications when a bit of prevention is worth a gigabyte of cureMetz, Mark A.July-August 1998Vol. 7, No. 6, p. 60(see also: Securities)

Home page guidelinesMetz, Mark A.July-August 1998Vol. 7, No. 6, p. 62(see also: Securities)

The Y2K problemFornelli, Cynthia M.September-October 1998Vol. 8, No. 1, p. 19

Getting readyWhere might your client find a Y2K problem?Klein, Sharon R. and Swanson, Kara W.September-October 1998Vol. 8, No. 1, p. 20

Insuring against catastropheUnderwriters should act now to prevent insolvency laterHammond, Douglas W.September-October 1998Vol. 8, No. 1, p. 24(see also: Insurance Issues)

A healthy policyWhat kind of insurance does your client company need against the Y2K bug?Eisenhofer, Jay W.September-October 1998Vol. 8, No. 1, p. 30(see also: Insurance Issues)

How Y2K could affect the supply chainA problem for day-to-day contractsCohn, Donald A. and Wittman, Paul S.September-October 1998Vol. 8, No. 1, p. 36(see also: Commercial Finance/Commercial Transactions; Corporate Law Departments; Small Business)

Addressing Y2K issues in M&A dealsA lesson in representations, warranties and indemnitiesSimon, Brette S.September-October 1998Vol. 8, No. 1, p. 42(see also: Mergers and Acquisitions)

Year 2000 compliance checklistVartanian, Thomas P.September-October 1998Vol. 8, No. 1, p. 45(see also: Corporate Law Departments)

Microsoft: IBM reduxIs its journey through the courts a bumpy road or just another bend on the information superhighway?Disner, Eliot G.September-October 1998Vol. 8, No. 1, p. 8(see also: Antitrust Law)

Lock and loadDocument security on the NetHill, JamesNovember-December 1998Vol. 8, No. 2, p. 8(see also: Commercial Finance/Commercial Transactions)

Telecommuting: It’s a tossupPracticing law at home can be good and not so goodTongue, KathrynNovember-December 1998Vol. 8, No. 2, p. 16(see also: Commercial Finance/Commercial Transactions; Labor and Employment)

Setting up a home officeTongue, KathrynNovember-December 1998Vol. 8, No. 2, p. 18(see also: Commercial Finance/Commercial Transactions; Labor and Employment)

The SEC talks about Y2KAgency issues a release to guide reporting obligationsDoty, James R.November-December 1998Vol. 8, No. 2, p. 26(see also: Securities)

EMPLOYEE BENEFITS AND EXECUTIVE COMPENSATION

Helping Dorothy find the wayPension funds and prohibited transactionsWeiser, JayMay-June 1997Vol. 6, No. 5, p. 52

Straight are the gatesHow to structure an independent compensation committeeDrapkin, Dennis B. and Rorimer, LouisJuly-August 1998Vol. 7, No. 6, p. 44(see also: Corporate Governance)

When the deposit isn’t madeAbuse of pension fund accounts is a crimeLundquist, John W. and Linder, Debra J.September-October 1998Vol. 8, No. 1, p. 54(see also: White Collar Criminal Liability)

ENVIRONMENTAL LAW

From fear to promiseNew help for brownfieldsSchoff, Paul J.May-June 1997Vol. 6, No. 5, p. 24

Glossary of brownfield termsSchoff, Paul J.May-June 1997Vol. 6, No. 5, p. 26

When less is more — troubleThe downside of downsizing environmental programsKoorse, Steven J.September-October 1997Vol. 7, No. 1, p. 24

HEALTH CARE LAW

Getting a jump on the jargonBeware gag clauses on IDSRishi, Smeeta S.July-August 1997Vol. 6, No. 6, p. 9

When east meets westBuying, selling and merging medical practicesWalton, Leigh and Meador, Patricia T.

July-August 1997Vol. 6, No. 6, p. 12(see also: Mergers and Acquisitions)

What about taxes?Walton, Leigh and Meador, Patricia T.July-August 1997Vol. 6, No. 6, p. 14(see also: Taxation)

When the bottom line is a look-alikeHealth care and antitrust lawWestrup, David A.July-August 1997Vol. 6, No. 6, p. 20(see also: Antitrust Law)

White coats, dark deedsAccountability vs. fraudPristave, Robert J. and Birt, ElizabethJuly-August 1997Vol. 6, No. 6, p. 24(see also: White Collar Criminal Liability)

Is medicine headed for an assembly line?Exploring the doctrine of the unauthorized corporate practice of medicineIndest, George F. III and Egolf, Barbara A.July-August 1997Vol. 6, No. 6, p. 32(see also: Mergers and Acquisitions)

Avoiding the allegationsIndest, George F. III and Egolf, Barbara A.July-August 1997Vol. 6, No. 6, p. 34

It’s all there in black and whiteFiguring out the various managed-care plans: What should the employer’s contract cover?DeRousie, Charles S.July-August 1997Vol. 6, No. 6, p. 38(see also: Insurance Issues)

Referral? What referral?The twists and turns of inducements and prohibitions in health careSiegel, Stephen H.July-August 1997Vol. 6, No. 6, p. 42(see also: Mergers and Acquisitions)

The prohibitions extend to the statesRishi, Smeeta S.July-August 1997Vol. 6, No. 6, p. 44

Minding the futureHow to advise on durable powers of attorneyChildress, B. KyleJuly-August 1997Vol. 6, No. 6, p. 52

Popularity came with CruzanChildress, B. KyleJuly-August 1997Vol. 6, No. 6, p. 54

INSURANCE ISSUES

Filling the gaps in D&O insurancePart II in a continuing saga of negotiating your client’s coverageWeiss, Stephen J.January-February 1997Vol. 6, No. 3, p. 44(see also: Corporate Governance; Corporate Law Departments)

It’s all there in black and whiteFiguring out the various managed-care plans: What should the employer’s contract cover?DeRousie, Charles S.July-August 1997Vol. 6, No. 6, p. 38(see also: Health Care Law)

Insuring against catastropheUnderwriters should act now to prevent insolvency laterHammond, Douglas W.September-October 1998Vol. 8, No. 1, p. 24(see also: Cyberspace)

A healthy policyWhat kind of insurance does your client company need against the Y2K bug?Eisenhofer, Jay W.September-October 1998Vol. 8, No. 1, p. 30(see also: Cyberspace)

INTELLECTUAL PROPERTY

Research or piracy?Court boards Texaco frigate; curtails copyingGillen, Stephen E.September-October 1996Vol. 6, No. 1, p. 52

So, who’s gonna know ...?Gillen, Stephen E.September-October 1996Vol. 6, No. 1, p. 54

Going in-house with intellectual propertyWhat It means; why you need a strategyLiang, J. MayMarch-April 1997Vol. 6, No. 4, p. 36(see also: Corporate Law Departments)

INTERNATIONAL

Doing the deal overseasHow to structure international project financingForry, John I.November-December 1996Vol. 6, No. 2, p. 24(see also: Commercial Finance/Commercial Transactions)

Predictability ahead?Forry, John I.November-December 1996Vol. 6, No. 2, p. 26(see also: Taxation)

Cross-border M&AAvoiding surprises through due diligenceChu, WilsonJanuary-February 1997Vol. 6, No. 3, p. 8(see also: Mergers and Acquisitions)

The overseas outletWhat U.S. companies should look for in foreign dealersCase, Douglas M.March-April 1997Vol. 6, No. 4, p. 50

How to end itCase, Douglas M.March-April 1997Vol. 6, No. 4, p. 52

A lawyer in a world without lawAn American’s odyssey in BulgariaWilkinson, Katherine J.September-October 1997Vol. 7, No. 1, p. 40

Into AfricaA basic primer for doing business on an emerging frontierCooper, Seward M.January-February 1998Vol. 7, No. 3, p. 14(see also: Mergers and Acquisitions)

Playing by the rules10 tips about immigration for business counselDivine, RobertJuly-August 1998Vol. 7, No. 6, p. 14(see also: Labor and Employment)

Making deals in ChinaWhat you’ll find; how it’s doneVandegrift, Benjamin M.November-December 1998Vol. 8, No. 2, p. 40(see also: Commercial Finance/Commercial Transactions)

LABOR AND EMPLOYMENT

Out of sight, out of mind?The legal issues in telecommuting for your business clientStewart, Helene R.November-December 1996Vol. 6, No. 2, p. 48

Who pays?Stewart, Helene R.November-December 1996Vol. 6, No. 2, p. 50

How confidential?Stewart, Helene R.November-December 1996Vol. 6, No. 2, p. 51

Playing by the rules10 tips about immigration for business counselDivine, Robert

July-August 1998Vol. 7, No. 6, p. 14(see also: International)

Telecommuting: It’s a tossupPracticing law at home can be good and not so goodTongue, KathrynNovember-December 1998Vol. 8, No. 2, p. 16(see also: Commercial Finance/Commercial Transactions; Cyberspace)

Setting up a home officeTongue, KathrynNovember-December 1998Vol. 8, No. 2, p. 18(see also: Commercial Finance/Commercial Transactions; Cyberspace)

Reducing the risk when reducing the forceIt’s a question of impact and treatmentZellner, HarrietNovember-December 1998Vol. 8, No. 2, p. 54(see also: Litigation)

LAW FIRMS

When pruning is in orderDuPont takes a new look at the corporate-outside counsel relationshipMahoney, DanielJuly-August 1996Vol. 5, No. 6, p. 48(see also: Corporate Law Departments)

The ins and outs of a relationshipHow law firms can work with corporate counselBarron, Harold S.March-April 1997Vol. 6, No. 4, p. 14(see also: Corporate Law Departments)

Marketing begins at homeA few easy steps to let others in the firm know what’s happeningCorrier, LucilleMay-June 1997Vol. 6, No. 5, p. 48

Value billing todayCost control for a new worldToews, J. ChristopherJanuary-February 1998Vol. 7, No. 3, p. 8

Law firms and legal departments: Can’t we all get along?From the outside, looking inHenning, Joel F.July-August 1998Vol. 7, No. 6, p. 24(see also: Corporate Law Departments)

Law firms and legal departments: Can’t we all get along?From the inside, looking outChaykin, ArthurJuly-August 1998Vol. 7, No. 6, p. 25(see also: Corporate Law Departments)

A plea for understandingWhether you’re in-house or outside, the client wants you to know their businessSneider, SusanJuly-August 1998Vol. 7, No. 6, p. 38(see also: Corporate Law Departments)

LAW SCHOOLS

How some law schools compareWoolsey, TerryJuly-August 1996Vol. 5, No. 6, p. 37

LITIGATION

Not very appealingYour company lost its case the first time around. Will an appeal work?Norris, Patricia K. and Taylor, R. Neil IIISeptember-October 1996Vol. 6, No. 1, p. 56

Bargain business lawHow to cut through the costs when a trial loomsMannino, Edward F.January-February 1997Vol. 6, No. 3, p. 14

Hands on at headquartersBank of America tells how its legal department deals with litigationRoethe, James N.March-April 1997Vol. 6, No. 4, p. 8(see also: Corporate Law Departments)

Getting cost effective with the small caseRoethe, James N.March-April 1997Vol. 6, No. 4, p. 10

Class actionsKoren, Bennet S.May-June 1998Vol. 7, No. 5, p. 23

Excuse me, but who’s the predator?Banks can use arbitration clauses as a defenseKaplinsky, Alan S. and Levin, Mark J.May-June 1998Vol. 7, No. 5, p. 24(see also: Alternative Dispute Resolution)

Excuse me, but who’s the predator?Legitimate businesses can behave badlyGirard, Daniel C.May-June 1998Vol. 7, No. 5, p. 25

Reform, what reform?Class actions in securities cases have changed in some ways, but more needs to be doneStrong, ElizabethMay-June 1998Vol. 7, No. 5, p. 32(see also: Securities)

Fine-tuning class action rulesThe anatomy of a change in procedureWells, H. Thomas Jr.May-June 1998Vol. 7, No. 5, p. 38

Reducing the risk when reducing the forceIt’s a question of impact and treatmentZellner, HarrietNovember-December 1998Vol. 8, No. 2, p. 54(see also: Labor and Employment)

MERGERS AND ACQUISITIONS

New York creates business courtsIf they can make it there, can they make it anywhere?Haig, Robert L.September-October 1996Vol. 6, No. 1, p. 32(see also: Courts)

Business courts on the moveBrandel, Roland E. and Haig, Robert L.September-October 1996Vol. 6, No. 1, p. 35(see also: Courts)

Cross-border M&AAvoiding surprises through due diligenceChu, WilsonJanuary-February 1997Vol. 6, No. 3, p. 8(see also: International)

Acquisition agitationWhat to do when your fund’s adviser is bought out by another firmDjinis, Stephanie A.January-February 1997Vol. 6, No. 3, p. 54(see also: Securities)

Is the acquisition OK?A checklistDjinis, Stephanie A.January-February 1997Vol. 6, No. 3, p. 58(see also: Securities)

Lies, damn lies and unethical liesHow to negotiate ethically and effectivelyGeronemus, DavidMay-June 1997Vol. 6, No. 5, p. 10(see also: Professional Responsibility)

The taxman comethHandling earn-outs in business acquisitionsBlanchard, Kimberly S.May-June 1997Vol. 6, No. 5, p. 58(see also: Taxation)

Taxing that earn-outBlanchard, Kimberly S.May-June 1997

Vol. 6, No. 5, p. 60(see also: Taxation)

When east meets westBuying, selling and merging medical practicesWalton, Leigh and Meador, Patricia T.July-August 1997Vol. 6, No. 6, p. 12(see also: Health Care Law)

Is medicine headed for an assembly line?Exploring the doctrine of the unauthorized corporate practice of medicineIndest, George F. III and Egolf, Barbara A.July-August 1997Vol. 6, No. 6, p. 32(see also: Health Care Law)

Referral? What referral?The twists and turns of inducements and prohibitions in health careSiegel, Stephen H.July-August 1997Vol. 6, No. 6, p. 42(see also: Health Care Law)

Taxing? HardlyLocating a business in a tax-free jurisdictionSteinbach, Harold I. and Grayson, Heath H.September-October 1997Vol. 7, No. 1, p. 32(see also: Taxation)

Into AfricaA basic primer for doing business on an emerging frontierCooper, Seward M.January-February 1998Vol. 7, No. 3, p. 14(see also: International)

Merger maniaHow a business lawyer can assist antitrust counselChin, Yee WahMarch-April 1998Vol. 7, No. 4, p. 32(see also: Antitrust Law; Corporate Law Departments)

A brief for S and C corporationsSmall, closely held businesses should remember the tax issueSliwoski, Leonard J. and Bader, MaryMarch-April 1998Vol. 7, No. 4, p. 48(see also: Small Business; Taxation)

Making niceHelp your client nurture good relationships in contract negotiationsRobins, Martin B.May-June 1998Vol. 7, No. 5, p. 44

Breaking up is hard to doWhat are your rights when business partners decide to split?Jacobs, Neal A.July-August 1998Vol. 7, No. 6, p. 8

Addressing Y2K issues in M&A dealsA lesson in representations, warranties and indemnities

Simon, Brette S.September-October 1998Vol. 8, No. 1, p. 42(see also: Cyberspace)

MISCELLANEOUS

Jet wayHow to buy and keep that corporate planeWieand, Jeffrey S.March-April 1997Vol. 6, No. 4, p. 58

CEOs on the standHow to help your company’s exec get beyond arroganceHenderson, KyNovember-December 1997Vol. 7, No. 2, p. 20

Getting rid of a dealerHow to get out of a touchy situationMoran, Stephen M.November-December 1997Vol. 7, No. 2, p. 24

PERSONAL PROFILES

Lord of the CastleMichael Heyman brings a lawyer’s perspective to the SmithsonianWood, SaraSeptember-October 1996Vol. 6, No. 1, p. 28

Fred Miller: UCC personifiedRueter, ThadJanuary-February 1997Vol. 6, No. 3, p. 20(see also: Uniform Commercial Code)

A breath of fresh air for bankruptcyAn uncommon woman finds the common manChon, GinaSeptember-October 1997Vol. 7, No. 1, p. 18(see also: Bankruptcy)

Mr. Corporate LawAn Atlanta lawyer brings talent to crafting models for states, corporationsChon, Gina and Romain, MiriamNovember-December 1997Vol. 7, No. 2, p. 40

Not just your average business lawyerWilliam Webster remembers when he headed the FBI and the CIAChon, GinaJanuary-February 1998Vol. 7, No. 3, p. 48

Our man in DelawareRecent Section chair now chairs that state’s highest courtChon, GinaMarch-April 1998Vol. 7, No. 4, p. 40(see also: ABA)

Section standouts: Association man!

September-October 1998Vol. 8, No. 1, p. 57(see also: ABA)

PROFESSIONAL RESPONSIBILITY

Be proud of what you doAvoiding professional pitfallsValihura, Karen L.July-August 1996Vol. 5, No. 6, p. 32(see also: Career/Training)

Malpractice alertNo ‘conflict,’ but a conflict of interestLubet, StevenJanuary-February 1997Vol. 6, No. 3, p. 32

What does ‘in confidence’ mean?Secrets, confidentiality and the in-house lawyerKalish, Stephen E.March-April 1997Vol. 6, No. 4, p. 18(see also: Corporate Law Departments)

What do the rules say?Kalish, Stephen E.March-April 1997Vol. 6, No. 4, p. 20(see also: Corporate Law Departments)

Lies, damn lies and unethical liesHow to negotiate ethically and effectivelyGeronemus, DavidMay-June 1997Vol. 6, No. 5, p. 10(see also: Mergers and Acquisitions)

Unethical honesty?Fines, Barbara GlesnerMay-June 1997Vol. 6, No. 5, p. 14

The author repliesGeronemus, DavidMay-June 1997Vol. 6, No. 5, p. 15

Bibliography of law review articlesGeronemus, DavidMay-June 1997Vol. 6, No. 5, p. 17

Making it rightVeasey plans action to reform lawyer conductVeasey, E. NormanMarch-April 1998Vol. 7, No. 4, p. 42

Are you really disinterested?Chapter 11 presents real problems in ethicsFrost, Christopher W.November-December 1998Vol. 8, No. 2, p. 24

(see also: Bankruptcy)

Two groups’ views on being disinterestedFrost, Christopher W.November-December 1998Vol. 8, No. 2, p. 26(see also: Bankruptcy)

PUBLIC INTEREST/PUBLIC SERVICE

It’s also about public serviceBeyond the billable hourIde, William B. IIIJuly-August 1996Vol. 5, No. 6, p. 22

Pro bono for businessesA retainer agreement for an act of goodwillWare, G. LaneMarch-April 1998Vol. 7, No. 4, p. 20

Breaking new groundHow corporate pro bono can workHackett, SusanMay-June 1998Vol. 7, No. 5, p. 50(see also: Corporate Law Departments)

SECURITIES

It’s a private matterWhat should a closely held company keep in mind when issuing a tender offer?Berick, Daniel G.September-October 1996Vol. 6, No. 1, p. 47(see also: Corporate Governance)

Tender offer? I know it when I see ItBerick, Daniel G.September-October 1996Vol. 6, No. 1, p. 48

Blue sky, smilin’ on me ...Berick, Daniel G.September-October 1996Vol. 6, No. 1, p. 50

Regulation for a new worldAn SEC commissioner talks about capital formation in the age of the InternetWallman, Steven M.November-December 1996Vol. 6, No. 2, p. 8(see also: Cyberspace)

Riding herd on the muni marketThe deputy director of the SEC’s office of municipal securities speaks outGolden, Susan M.November-December 1996Vol. 6, No. 2, p. 29(see also: Commercial Finance/Commercial Transactions)

The SEC and disclosure — the backgroundGolden, Susan M.November-December 1996Vol. 6, No. 2, p. 31

The two-page prophetA look at the SEC’s suggestion of a brief profile prospectus for investment companiesKornblum, Aaron E.January-February 1997Vol. 6, No. 3, p. 24

Acquisition agitationWhat to do when your fund’s adviser is bought out by another firmDjinis, Stephanie A.January-February 1997Vol. 6, No. 3, p. 54(see also: Mergers and Acquisitions)

Is the acquisition OK?A checklistDjinis, Stephanie A.January-February 1997Vol. 6, No. 3, p. 58(see also: Mergers and Acquisitions)

Grabbing the bull by the hornsTaurus: the future of arbitration in securities disputes?Clemente, Robert S. and Kupersmith, KarenMay-June 1997Vol. 6, No. 5, p. 18(see also: Alternative Dispute Resolution)

Arbitration, as seen by the Supreme CourtClemente, Robert S. and Kupersmith, KarenMay-June 1997Vol. 6, No. 5, p. 20(see also: Alternative Dispute Resolution)

The two-page prophet moves aheadThe SEC’s proposed slimmed prospectus moves closer to realityKornblum, Aaron E. May-June 1997Vol. 6, No. 5, p. 35

Saving billions for investors, a penny at a timeAn SEC commissioner’s views on why we should trade in decimalsWallman, Steven M.H.September-October 1997Vol. 7, No. 1, p. 12

An update on hedge fundsA new law makes these investments more attractiveSchultz, Stephen M. and Nadel, Steven B.September-October 1997Vol. 7, No. 1, p. 58

What exactly is a hedge fund?Schultz, Stephen M. and Nadel, Steven B.September-October 1997Vol. 7, No. 1, p. 60

Reselling securitiesA guide to the fundamentalsGeanacopoulos, StephenNovember-December 1997Vol. 7, No. 2, p. 50

A resale exampleGeanacopoulos, Stephen

November-December 1997Vol. 7, No. 2, p. 54

Welcome to the WebPointers for setting up a site of your ownLittle, Caroline H.March-April 1998Vol. 7, No. 4, p. 14(see also: Cyberspace)

Reform, what reform?Class actions in securities cases have changed in some ways, but more needs to be doneStrong, ElizabethMay-June 1998Vol. 7, No. 5, p. 32(see also: Litigation)

Don’t get too comfy with that home pageSecurities-law implications when a bit of prevention is worth a gigabyte of cureMetz, Mark A.July-August 1998Vol. 7, No. 6, p. 60(see also: Cyberspace)

Home page guidelinesMetz, Mark A.July-August 1998Vol. 7, No. 6, p. 62(see also: Cyberspace)

The SEC talks about Y2KAgency issues a release to guide reporting obligationsDoty, James R.November-December 1998Vol. 8, No. 2, p. 26(see also: Cyberspace)

SMALL BUSINESS

The in-betweenerVenture-capital lawyers pair investors with entrepreneursWoolsey, TerryNovember-December 1996Vol. 6, No. 2, p. 14(see also: Commercial Finance/Commercial Transactions)

Angels on the Internet for small companiesFlowers, Michael E.September-October 1997Vol. 7, No. 1, p. 1(see also: Cyberspace)

But is that new software worth it?Toews, J. ChristopherJanuary-February 1998Vol. 7, No. 3, p. 12(see also: Cyberspace)

Rating a records-management programDietel, J. EdwinJanuary-February 1998Vol. 7, No. 3, p. 60(see also: Corporate Governance)

Here’s an opportunity for small businessesFlowers, Michael E.

March-April 1998Vol. 7, No. 4, p. 5

A brief for S and C corporationsSmall, closely held businesses should remember the tax issueSliwoski, Leonard J. and Bader, MaryMarch-April 1998Vol. 7, No. 4, p. 48(see also: Mergers and Acquisitions; Taxation)

How Y2K could affect the supply chainA problem for day-to-day contractsCohn, Donald A. and Wittman, Paul S.September-October 1998Vol. 8, No. 1, p. 36(see also: Commercial Finance/Commercial Transactions; Corporate Law Departments; Cyberspace)

TAXATION

Predictability ahead?Forry, John I.November-December 1996Vol. 6, No. 2, p. 26(see also: International)

The IRS steps backEntity-classification rules are relaxedBagley, William D.January-February 1997Vol. 6, No. 3, p. 41

The taxman comethHandling earn-outs in business acquisitionsBlanchard, Kimberly S.May-June 1997Vol. 6, No. 5, p. 58(see also: Mergers and Acquisitions)

Taxing that earn-outBlanchard, Kimberly S.May-June 1997Vol. 6, No. 5, p. 60(see also: Mergers and Acquisitions)

What about taxes?Walton, Leigh and Meador, Patricia T.July-August 1997Vol. 6, No. 6, p. 14(see also: Health Care Law)

Taxing? HardlyLocating a business in a tax-free jurisdictionSteinbach, Harold I. and Grayson, Heath H.September-October 1997Vol. 7, No. 1, p. 32(see also: Mergers and Acquisitions)

A brief for S and C corporationsSmall, closely held businesses should remember the tax issueSliwoski, Leonard J. and Bader, MaryMarch-April 1998Vol. 7, No. 4, p. 48(see also: Mergers and Acquisitions; Small Business)

TELECOMMUNICATIONS INDUSTRY

Let the battle beginGoal of ‘96 communication act is to foster competitionWadlow, R. Clark and Parker, Rosalind M.September-October 1996Vol. 6, No. 1, p. 10(see also: Antitrust)

Getting past the jargonWadlow, R. Clark and Parker, Rosalind M.September-October 1996Vol. 6, No. 1, p. 12

Regional safeguardsWadlow, R. Clark and Parker, Rosalind M.September-October 1996Vol. 6, No. 1, p. 14

Going with the cash flowGet to know this crucial factor in communications dealsTannenbaum, Frederic D.November-December 1998Vol. 8, No. 2, p. 32(see also: Commercial Finance/Commercial Transactions)

UNIFORM COMMERCIAL CODE

Updating the UCCRevisions in the works affect consumersGabriel, Henry D. and Barski, Katherine A.September-October 1996Vol. 6, No. 1, p. 16(see also: Commercial Finance/Commercial Transactions)

Licensing in a new ageContracts, computers and the UCCMaher, Terrence P. and Milroy, Margaret L.September-October 1996Vol. 6, No. 1, p. 22(see also: Commercial Finance/Commercial Transactions; Cyberspace)

When assets become securitiesThe ABC’s of asset securitizationSoukup, Lynn A.November-December 1996Vol. 6, No. 2, p. 20(see also: Commercial Finance/Commercial Transactions)

Fred Miller: UCC personifiedRueter, ThadJanuary-February 1997Vol. 6, No. 3, p. 20(see also: Personal Profiles)

The slippery slope to bankruptcy: Should some claimants get a ‘carve-out’ from secured credit?Yes: reserve a cushion of free assets for unsecured creditorsWoodward, William J. Jr.January-February 1998Vol. 7, No. 3, p. 32(see also: Bankruptcy; Commercial Finance/Commercial Transactions)

The slippery slope to bankruptcy: Should some claimants get a ‘carve-out’ from secured credit?No: it’s a populist craving for a petit bourgeois valhallaWhite, James J.January-February 1998Vol. 7, No. 3, p. 32

(see also: Bankruptcy; Commercial Finance/Commercial Transactions)

What is the ‘carve-out’ and where does it stand?Woodward, William J.January-February 1998Vol. 7, No. 3, p. 35(see also: Bankruptcy; Commercial Finance/Commercial Transactions)

WHITE COLLAR CRIMINAL LIABILITY

Caught in the act — almostConvicting managers for the conduct of subordinatesKowal, Steven M.March-April 1997Vol. 6, No. 4, p. 24

White coats, dark deedsAccountability vs. fraudPristave, Robert J. and Birt, ElizabethJuly-August 1997Vol. 6, No. 6, p. 24(see also: Health Care Law)

Compliance or criminalityCorporate programs can help shield execs against criminal liabilityKowal, Steven M.November-December 1997Vol. 7, No. 2, p. 32

An effective compliance programKowal, Steven M.November-December 1997Vol. 7, No. 2, p. 34

Mr. Corporate in a pinstriped suit — almostOK, maybe the stripe could be a little different for your unwary business clientRazzano, Frank C. and Bensky, EricMay-June 1998Vol. 7, No. 5, p. 12

When the deposit isn’t madeAbuse of pension fund accounts is a crimeLundquist, John W. and Linder, Debra J.September-October 1998Vol. 8, No. 1, p. 54(see also: Employee Benefits and Executive Compensation)

Departments/Columns

The Computer Wizard

Tech Show 96: Getting wired in ChicagoGoldberg, Alan S.September-October 1996Vol. 6, No. 1, p. 39

About that e-mail: Lawyers bewareGoldberg, Alan S.March-April 1997Vol. 6, No. 4, p. 34

Files that will not dieGoldberg, Alan S.November-December 1997Vol. 7, No. 2, p. 46

The law firm technology committeeGoldberg, Alan S.November-December 1998Vol. 8, No. 2, p. 14

The Section’s Experts Speak

Is it Roswell all over again — in law firms?DeLong, RaySeptember-October 1997Vol. 7, No. 1, p. 23

But are those billing alternatives ethical?DeLong, RayNovember-December 1998Vol. 8, No. 2, p. 23

From a Distance ...

A lawyer’s egoFreund, James C.January-February 1998Vol. 7, No. 3, p. 44

The refuge of ageFreund, James C.March-April 1998Vol. 7, No. 4, p. 24

Hurdling the credibility gapFreund, James C.May-June 1998Vol. 7, No. 5, p. 18

Part-time professorFreund, James C.July-August 1998Vol. 7, No. 6, p. 20

Legal fictionFreund, James C.September-October 1998Vol. 8, No. 1, p. 6

My fair lawyerFreund, James C.November-December 1998Vol. 8, No. 2, p. 38

INDEX

Business Law Today: An index of the second two yearsBerger, Kenneth and Jochens, NancyJuly-August 1996Vol. 5, No. 6, p. 54

Joint Ventures

Section task force meets with staff of the SECJuly-August 1996Vol. 5, No. 6, p. 64

Lawyers’ replies to auditors: Guidance on the privilege issueSeptember-October 1996Vol. 6, No. 1, p. 64

Get busy and send us a nameNovember-December 1996Vol. 6, No. 2, p. 64

On changing independent auditorsJanuary-February 1997Vol. 6, No. 3, p. 64

Playing fairMay-June 1997Vol. 6, No. 5, p. 64

It’s time to nominateNovember-December 1997Vol. 7, No. 2, p. 64

Cyberspace - - where law is an adventureJuly-August 1998Vol. 7, No. 6, p. 49

It’s time to nominateNovember-December 1998Vol. 8, No. 2, p. 64

Legal-Ease

What goes without sayingDarmstadter, HowardSeptember-October 1996Vol. 6, No. 1, p. 61

Swat out those nits!Graynor, Barry A.September-October 1996Vol. 6, No. 1, p. 62

A prospectus for the rest of usDarmstadter, HowardNovember-December 1996Vol. 6, No. 2, p. 40

Promissory notes: Part one (1)Darmstadter, HowardJanuary-February 1997Vol. 6, No. 3, p. 30

About those boys in the back room: Schedules and exhibitsDarmstadter, HowardJuly-August 1997Vol. 6, No. 6, p. 29

It’s about — timeSchwartz, Robert S.July-August 1997Vol. 6, No. 6, p. 30

What is a counterpart?Darmstadter, HowardNovember-December 1997Vol. 7, No. 2, p. 38

Who are these guys (and dolls)?Darmstadter, HowardJanuary-February 1998

For the PublicABA Approved Law SchoolsLaw School AccreditationPublic EducationPublic Resources

Resources ForBar AssociationsDiversityGovernment and PublicSector LawyersJudgesLaw StudentsLawyers of ColorLawyers with Disabilities

Lesbian, Gay, Bisexual &Transgender LawyersMilitary LawyersSenior LawyersSolo and Small FirmsWomen LawyersYoung Lawyers

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Vol. 7, No. 3, p. 54

Tips for a plain-talk prospectusDarmstadter, HowardMarch-April 1998Vol. 7, No. 4, p. 28

Shall? Will? Who makes the rules?Darmstadter, HowardMay-June 1998Vol. 7, No. 5, p. 8

Shall — Take No. 2Cohen, Debra R.May-June 1998Vol. 7, No. 5, p. 10

Does the Pony Express still stop here?Darmstadter, HowardSeptember-October 1998Vol. 8, No. 1, p. 16

Pro Bono Defined

It helps the bottom line — reallyBaillie, James L.January-February 1997Vol. 6, No. 3, p. 50

myABA | Log OutWelcome, Graham

ABA Section of Business LawBusiness Law TodayJanuary/February 1999

Section sound bites

Spring Meeting

The San Francisco Spring Meeting is just around the corner and the Section has a full schedule of eventsplanned. Watch your mail for details on registration, more than 45 CLE programs, more than 200 committeeand subcommittee meetings and a variety of social activities. Visit the Section’s Web site to register online forthe Spring Meeting and to check out the latest event highlights, program and committee meeting schedulesand general meeting information. Or, call the Section’s fax on demand at 312/988-5810 for info.

Important deadlines: March 15: hotel reservation; March 26: meeting registration. Check out pages 60-61 inthis issue of BLT for additional information.

Last chance to nominate

Remember, nominations for the Seventh Annual Glass Cutter Award, the Mendes Hershman Student WritingContest Award and the National Public Service Award are due by Feb. 12.

For complete information on these awards, check out the Section’s Web site at www.abanet.org/buslaw, callSue Daly at 312/988-6244 or e-mail suedaly@staff.abanet.org.

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New committee directory

The 1998-1999 Committee Directory will be available in mid to late January from the ABA Service Center. AllSection members who belong to a committee will automatically receive a free copy. It provides a completelisting of the members of all Section committees and subcommittees.

For those of you who do not belong to a Section committee, call the ABA Service Center at 1-800-285-2221and order your copy today!

Young lawyer fellow program

The Section has created a fellowship program designed to increase the participation of young lawyers inSection activities.

Five members of the Young Lawyers Division were recently named as the first class of Business Law Fellows.The program offers young lawyers the opportunity to become involved in the substantive work of committees,to develop as future leaders for the Section, to experience the benefits of being an active Section member andto increase participation by other young lawyers.

So, congratulations to…

Michelle S. Druce, Portland, Ore.; Brett D. Fallon, Wilmington, Del.; Kathleen J. Hopkins, Seattle; Heidi L.McNeil, Phoenix; and William G. Scoggin, Cary, N.C.

Joint task force created

The Section has launched a new Task Force on Privacy, a joint effort of the Banking, Consumer FinancialServices and Cyberspace Law committees. The new chairs are in the process of developing the scope andmission as well as projects for the task force. Check out the Section’s Web site at www.abanet.org/buslaw orcall the Section office at 312/988-5588 for details or to enroll.

ABA Board of Governors approves a center in China

The ABA Board of Governors recently approved the establishment of a Center for the Study of Business Law inBeijing, China. An agreement between the Section, Temple University Law School and the China University ofPolitical Science resulted in the creation of the center that will offer continuing legal education programs ontopics of current interest in different areas of business law to practicing Chinese lawyers and governmentofficials as well as business and other persons in Beijing and other Chinese cities.

The center will provide Chinese lawyers, government officials and others with an understanding of the basicprinciples of U.S. and international legal concepts that govern business relationships and economic regulation.