BJR

Smith v Van Gorkom

Under the business judgment rule, there is no protection for directors who have made an
unintelligent or unadvised judgment, and is derived from the fiduciary capacity in which he
or she serves the corporation and its stockholders. Directors have an affirmative duty to
protect the financial interests of those whom he or she represents and to critically assess all
pertinent information. Since there were no allegations or proof of fraud, bad faith, or self-
dealing, it is presumed that the directors reached their business judgment in good faith. The
concept of gross negligence is the proper standard for determining whether a business
judgment reached by a board of directors was an informed one. Ex Van Gorkoms case the
directors did not adequately inform themselves as to Van Gorkoms role in forcing the sale
of the Company and in establishing the per share purchase price, were uninformed as to the
intrinsic value of the Company, and were grossly negligent in approving the sale upon two
hours consideration, without prior notice, and in the absence of a crisis or emergency.

None of the directors, other than Van Gorkom and Chelberg, had any prior knowledge that
the purpose of the meeting on September 20th was to propose a cash-out merger of Trans
Union. Without any documentation, the Board was required to rely on Van Gorkoms 20-
minute oral presentation of the proposal. No written summary of the terms of the merger
was presented, the directors were given no documentation to support the adequacy of the
$55 price per share for the
sale of the Company, and the Board had nothing more than Van Gorkoms statement of his
understanding of the agreement which he admittedly had never read, nor which any member
of the Board had ever seen. Neither Van Gorkoms oral presentation nor Romans brief oral
statement constitute a report.

The Company was also mis-valued by Van Gorkom, who reached a total value of the
Company by multiplying the $55 per share figure (based solely on the availability of a
leveraged buy-out) by the number of shares outstanding, to reach a valuation of $690
million. As such, Van Gorkom failed his fiduciary responsibility to the Company.

The directors of Trans Union also failed to disclose germane facts to the shareholders
relating to the merger that required shareholder approval, according to the directors
fiduciary duty. Since the shareholders were not provided material facts regarding the
proposed merger, the shareholders approval of the merger was not based on an informed
electorate.