Pg 28

Question 1

What are the fairness factors that should be considered under the modern approach to conflict of interest?

Answer 1

– adequacy of the consideration
– corporation's need for the product or the transaction
– financial situation of the corporation
– available alternatives
– duty of full disclosure
– independent committee

Question 2

What is involved in the fairness factor to consider for the modern approach to conflict of interest that calls for adequacy of consideration?

Answer 2

The board needs to know the proposed price plus the price that other companies charge for similar things

Question 3

What is involved in the fairness factor to consider for the modern approach to conflict of interest that calls for the corporation’s need for the product or transaction?

Answer 3

The board needs to know the business plans that are the basis for wanting this thing

Question 4

What is involved in the fairness factor to consider for the modern approach to conflict of interest that calls for the financial situation of the corporation?

Answer 4

The board needs to know if the corporation is able to pay for it and need information about the corporation’s cash flow and the projected return from it.

Question 5

What is involved in the fairness factor to consider for the modern approach to conflict of interest that calls for the availability of alternatives?

Answer 5

The board needs to look at the bigger picture and needs to know if there is market availability for similar items and if there is something that makes this unique.

Question 6

What is involved in the fairness factor to consider for the modern approach to conflict of interest that calls for the duty of full disclosure?

Answer 6

If there’s an interested director or officer, they must disclose all material facts that bear on the transaction, not just the self dealing ones.

Question 7

Under the modern approach to conflict of interest, if a board ratifies a transaction, that creates a presumption of what?

Answer 7

Presumption that the transaction was fair and honest even though there was a conflict of interest.

Question 8

What is the one exception where a director or officer doesn’t have to reasonably disclose the conflict of interest?

Answer 8

If he reasonably believes there’s a duty of confidentiality that would stop that.

Question 9

Any director or officer that has knowledge of material facts relevant to a proposed transaction has an affirmative duty to do what?

Answer 9

Disclose it. This also applies to disinterested directors and officers because they cannot sit by if they have material information.

Question 10

If a director or an officer has material information that is relevant to a proposed transaction and he fails to disclose that information, what has happened?

Answer 10

There has been a breach of loyalty

Question 11

If one director on a board wants the corporation to buy his special coffee blend and another director is travelling and goes to a coffee chain and tries out their special blend and discovers that is very similar and much cheaper, what is his affirmative duty?

Answer 11

To disclose this to the board

Question 12

Formally gotten information from things like scientific studies, white papers, professional publications, or any credible source can also form what with regard to conflict of interest?

Answer 12

An affirmative duty to disclose these things if you are a director or officer as long as they are materially relevant to the transaction before the board.

Question 13

The duty of disclosure applies to all directors and all officers regardless of what?

Answer 13

Whether they are interested or disinterested

Question 14

What is involved in the modern approach to conflict of interest that asks for an independent committee?

Answer 14

An interested director or officer can only help to make a quorum. Once the quorum is present, the disinterested directors gather apart from the interested ones and decide whether to ratify or not.

Question 15

What is subchapter F?

Answer 15

An aggressive statutory approach to director self-dealing that protects a director’s conflicting interest transaction if any of these are met:
– the transaction was authorized by a majority vote of qualified directors
– the transaction was authorized by a majority vote of qualified shareholders
– the transaction taken as a whole is fair to the corp

Question 16

Under subchapter F, what is the category that allows for director conflict of interest if the transaction was authorized by a majority vote of qualified directors?

Answer 16

As long as the directors had full disclosure of the conflict of interest, they deliberated, they voted outside of the presence of the conflicted party, the interested party did not also vote, they were disinterested, there was a minimum of two votes, etc.

Question 17

What is involved in subchapter F where a conflict of interest is OK as long as there was majority approval of qualified shareholders?

Answer 17

Only qualified shareholders’ votes count, but it’s OK if non-qualified shareholders were also at the meeting and voted, their votes just do not count. There must be a quorum/simple majority, and a majority of qualified shareholders must vote positively. The shareholders must have gotten a notice that described the action and the secretary must know who is and is not a qualified shareholder. The defendant must also disclose the existence and nature of the conflict of interest and all facts that are known to him about the transaction that are reasonably material to the shareholders in making a decision.

Question 18

What is involved in subchapter F with regard to a conflict of interest being OK as long as the transaction was fair to the corporation?

Answer 18

This is OK if based on the circumstances at the time, taken as a whole, the transaction was fair toward the corporation.