DGCL 102 (b) 7

(b) In addition to the matters required to be set forth in the certificate of incorporation by
subsection (a) of this section, the certificate of incorporation may also contain any or all of the
following matters:
(7) A provision eliminating or limiting the personal liability of a director to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director, provided that such
provision shall not eliminate or limit the liability of a director: (i) For any breach of the director's
duty of loyalty to the corporation or its stockholders; (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law; (iii) under § 174 of this
title; or (iv) for any transaction from which the director derived an improper personal benefit. No
such provision shall eliminate or limit the liability of a director for any act or omission occurring
prior to the date when such provision becomes effective. All references in this paragraph to a
director shall also be deemed to refer (x) to a member of the governing body of a corporation
which is not authorized to issue capital stock, and (y) to such other person or persons, if any,
who, pursuant to a provision of the certificate of incorporation in accordance with § 141(a) of
this title, exercise or perform any of the powers or duties otherwise conferred or imposed upon
the board of directors by this title.

NYBCL 402 (b)

Section 402(b) of the NYBCL provides that a corporation’s Certificate of Incorporation may include a provision
eliminating or limiting the personal liability of its directors to the corporation or its shareholders for damages for any
breach of duty in such capacity, except liability if a judgment or final adjudication establishes that the directors acts
or omissions were in bad faith or involved intentional misconduct or a knowing violation of law or that he
personally gained in fact a financial profit or other advantage to which he was not legally entitled or that his acts
violated Section 719 of the NYBCL or liability if the act or omission occurred prior to the adoption of a provision
authorized by this section. The certificate of incorporation of each of 565 Broad Hollow Realty Corp. and Parfums
Schiaparelli, Inc. currently do not contain a provision explicitly authorizing a limitation on such liabilities as
permitted by Section 402(b).

Under Section 402(b) of the NYBCL we are entitled to limit in the Certificate the personal liability of a director to the corporation or its
shareholders for violations of the director's duty, except for the liability of any director if a judgment or other final adjudication
adverse to him established that (i) his acts or omission were in bad faith or involved intentional misconduct or a knowing violation of
law, or (ii) he personally gained in fact a financial profit or other advantage to which he was not legally entitled to, or (iii) his acts
violated Section 719 of the NYBCL (providing for liability of directors for voting for or concurring in the declaration of unlawful
dividends or unlawful stock purchases or redemptions, certain improper distributions of assets to shareholders and improper loans).
Our Certificate contains a provision limiting the liability of our directors as permitted by Section 402(b).

Virginia Code § 13.1-690 - General standards of conduct for director

13.1-690. General standards of conduct for director.
A. A director shall discharge his duties as a director, including his duties as a member of a committee, in
accordance with his good faith business judgment of the best interests of the corporation.
B. Unless he has knowledge or information concerning the matter in question that makes reliance
unwarranted, a director is entitled to rely on information, opinions, reports or statements, including
financial statements and other financial data, if prepared or presented by:
1. One or more officers or employees of the corporation whom the director believes, in good faith, to be
reliable and competent in the matters presented;
2. Legal counsel, public accountants, or other persons as to matters the director believes, in good faith,
are within the person's professional or expert competence; or
3. A committee of the board of directors of which he is not a member if the director believes, in good faith,
that the committee merits confidence.
C. A director is not liable for any action taken as a director, or any failure to take any action, if he
performed the duties of his office in compliance with this section.
D. A person alleging a violation of this section has the burden of proving the violation.
(Code 1950,

13-206, 13-207, 13.1-44; 1956, c. 428; 1985, c. 522.)
MODEL BUSINESS CORP ACT
§ 2.02. ARTICLES OF INCORPORATION
(b) The articles of incorporation may set forth: (4) a provision eliminating or limiting the liability of a director to the
corporation or its
shareholders for money damages for any action taken, or any failure to take any action, as a director,
except liability for (A) the amount of a financial benefit received by a director to which he is not
entitled; (B) an intentional infliction of harm on the corporation or the shareholders; (C) a violation of
section 8.33; or (D) an intentional violation of criminal law;

Key Terms
Trusts holding shares of stock
Exlusive Rights to Conduct Due Diligence:
Boards fiduciary duty
Escrow account payment
indemnify
temporary restraining order enjoing merger
exculpatory
review de nvoo

(B) Liability Shields

Direct Limits of Liability and Insurance

Emerald Partners: The shield from liability under 102 b 7 is in the nature of an affirmative defense,
defendants bear the burden of establishing each of its elements. The court here incorrectly ruled that the plaintiff had
the burden. Demonstrating good faith, is on the party seeking protection/shield.
Where the factual basis for a claim solely implicates a violation of care, protections under 102 may properly
be invoked.

MALPIEDE v. TOWNSON

Statement: Dimissing the plaintiffs due careclaim on the ground that the exculpatory provision
in the charter of the target corp under 102 bars any claim for money damages against he director
defendants based solely on the boards alleged breach of tis duty of care

Facts:
. F is a retailer of womens lingerie and apparel. F merged into K under circumstances where it became a
target in a bidding contest.
. F stock was divided into Class A (voting rights) and Class B( no vote). Dec. 96, there were 3 million class
A shares, 6 mil B shares
 . The founders of F created two trusts (T), which held about 41% of A shares and 51% of B shares.
. June 96, F board retains JMS to advise in a search for a buyer. Jan 97, JMS beings talk with K. Apirl 97, K
offered to purchase all of F’s shares between 6 and 6.25 per share. At K’s request, F board granted K
exlusive right to conduct due diligence
. June 97, F board approves K offer at 6.14 per share. (Note 39 important). The terms prohibit F board from
soliciting additional bids from third parties, but permitted the board to negotiate with third party when
board’s fiduciary duties required it to do so. (in that case, liquidated damages to K). F board sends CSS
recommending approval to stockholders
. Aug 97, F receives unsolicited bid from M for 7 per share. 4 days later, K agreed with Ts to purchase their
shares at 6.90 per. Under stock purchase agreement, Ts granted K a proxy to vote the Ts shares, but Ts had
rights to terminate if F rejected K offer of higher bid.
. Aug 97, F received unsolicited 7.75 per offer from V. F board postponed K merger to arrange a meeting
with the two new bidders. F board required escrow account and marked up merger agreement (like the one
with K) to the newbies. V submitted doc and 2.5 mil escrow payment, M did not
. Spet 97, board apparently informs V to submit final offer. The plaintiffs further allege that the board did
not inform V. On the same day, Ts and K amend agreement to eliminate Ts termination rights and other
conditions. K exercised rights under agreement and purchased Ts shares. K informs board any intention to
vote against third party bids
. During conference call with F board, V tells them they can purchased authorized but unissued shares to
get around 41% block of K’s shares if they accept V offer. V also agreed to indemnify the directors in case
K sued for breach of agreement.
. K raised offer to match V’s, but with certain restrictions on pursuing higher bids. F approved this. K
purchasd additional F Class A sares on open market at 8.21 per, acquiring majority of both classes
. V increased offer to 9, relying on #1,#2,#3 pg. 582 last full paragraph.
. Before the merger closed, plaintiffs file complaint, also moving for an injunction on the merge. The
amended complaint alleged that F breached fiduciary duties by not considering higher V offer.
. Chancery granted dimiss under Chancery Rule (b) (6), concluding that complaint did not support claim of
breach of boards duty of loyalty and the exculpatory provision in the F charter precluded money damages
against directors for breach of boards duty of care

Standard of Review: De novo the dismissal under Rule 12(b)6

Duty of Loyalty:
. Claim in complaint is that F’s sale to K breached fiduciary duty to maximize share holder value because
the board did not conduct a level auction under Revlon. (plaintiffs said you cant separate neatly into duty
of care and duty of loyalty claims)
. Court says Revlon does not create new FD nor alters the nature of FD that generally apply. Revlon
emphasizes that the board must perform FD to maximize sale price. Revlon produces enhanced judicial
scrutiny of sale transactions, but it does not eliminate the requirement that plaintiffs plead sufficient facts
to support the underlying claims for a breach of FD.
. Court then proceeds to determine whether the pleading was sufficient to support a breach of FD.
. Chancery concluded that the complaint alleged conflict of interest with just one directors who approved
merger (plaintiffs do not contest this). The amended complaint does not allege that the lone director
dominated the three others who approved. Court says Chancery correctly held that K merger was approve
by majority of disinterested directors.

Due Care
. Primary due care issue is whether the board was grossly neg (breaching FD), in failing to implement a
defense strategy to help board negotiate for a higher bid
 . Routine to use poison pill to ward off K and prevent K from ending auction. Plaintiffs allaege that
directors could hae preserved the appropariate options for an auction (best value for SHs) with the PP
. It can be read to allege the board was GN in immediately taking K offer with restrictions without getting a
V counteroffer. (Board did search for a buyer for over year), but plaintiffs contend the board was still
hasty with the restrictive merger. See note 45 also
. Because there was already a lengthy sales process, the boards haste in it of itself may not be FD, but the
decision to accept extreme restrictions impacted its getting the highest price
. Because of BJR, must give plaintiffs benefit at the pleading stage to determine if they have stated a due
care cliam. Court ultimately does not need to reach this question
. Court assumes a claim for relief bassed on GN is stated, now can the claim be dismissed by Rule 12b6 by
reason of the provision in F’s certificate of incorporation: adopted pursuant to 102b7. This exempts
directors from personal liability in damages.
0 1) Court properly Dismissed Claims based solely on duty of care
/ Plaintiffs concede in orals that if a compl;aint unambiguously and solely asserted only
a due care claim, it can be dismissed by 102b7 provisions
/ They contented that the provision does not apply to bar their claims because the
complaint allages breaches of loyalty and other claims not barred. This is not soley a
due care case. They argue that the due care3 claims are so intertwined with loyalty and
bad faith claims that 102 is not a bar (they have pleaded well)
/ Court disagrees. The plaintiffs cannot receive the reasonable inferences because the
inferences do not support a valid legal claim. The claim should be dismissed. The
court assumes the amended complaint on its faces staets due care claim, because they
have already determined that the complaint fails to invoke loyalty and bad faith, only
due care is left. Defendants can then reaise 102. Therefore, Chancery did not err.
0 2) Chancery Correctly Applied the parties respective burdens of proof
/ plaintiffs argue that the ruling is inconsistent with Emerald Partners,
and that the pleading burden should not have been on the plaintiffs to
negate 102
/ Court says procedure is different, as in that case the trial court was
deciding the burden for the purposes of granting summary judgment, in
this case it is not trial burdens but pleading issues
/ had the pleaded well pleaded facts supporting loyalty and bad faith
claims, the case would have moved foward
/ the amended complaint does not contain either, and even if they stated a
claim for GN, such a well pleaded claim allows the defendants to use
102
/ This is for public policy reasons, as 102 was adopted after Van Gorkom
to permit stockholders to adopt provisions in the cert of corp to free
directs of personal liability in damages for due care, but not other duties
/ SHs approved these charter amendemns, because it freed up directors to
take business risks without worrying about lawsuits for neg.
/ Court here assumes the complaint is well pleaded for sue care, so 102 is
available to defendants,. Chancery was proper

Conclusion
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