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当前位置:西南政法大学外国民商法双语课程-----教学内容
 

SOUTHWEST UNIVERSITY OF POLITICAL SCIENCE AND LAW
TAKE-HOME
Final Examination--- Spring 2008

Cover Sheet

Course Title:

Corporations

Course No. and Section:

 

Professor:

Yan Li

Time Allowed:

24 Hours

Materials Allowed:

Open Book

Please indicate whether students are limited to a specific number of pages. Any other specific instructions can be indicated here.

See additional instructions on first sheet of exam.
Examination Rules. Please READ carefully.

1. There are three questions in this examination. The relative value of each question is stated at the beginning of each question.

2. With the exceptions stated in these instructions, this is an open-book examination. Thus, you may use any materials, but there is no reason for you to consult anything other than the materials we used in class.  

3. You may work on this examination for any consecutive 24-hour period between June 28 and June 29.

4. You may NOT discuss or have communication about the examination or your answers with any other person once you have begun the examination until the end of the exam period. This prohibition includes phone conversations, face-to-face conversations, e-mails, eye winks, head nodding, or any other form of communication. For instance, asking the question “Have you finished the exam yet?” or answering such a question would be considered a violation of this Rule. This prohibition covers communications with all persons, whether or not they are students at the Law School. I will treat violation of this Rule as cheating.

5. You need not retain or submit any notes that are not part of your final answer. You will, of course, only receive credit for what you submit at the end of the examination.

6. WORD LIMIT: THE ANSWERS TO YOUR EXAMINATION MAY NOT EXCEED A TOTAL OF 6000 WORDS. You should be able to complete your exam with fewer words and should not feel compelled to reach the limit.

Test A
一、论述题
It has been claimed that two important and complementary aspects of any corporate governance regime are a statutory business judgement rule and a statutory derivative action. Following consultation, however, the Law Commission ruled out the need for a statutory business judgement rule in the UK.
Explain the nature of the business judgement rule and how, in relation to the statutory derivative claim, it can play a role in promoting corporate governance.

Commentary
This question considers a topic that is considered of vital importance in the USA, where it originated in Delaware, and which has been adopted in Australia, Canada, and elsewhere but which it has not been found necessary to be incorporated into UK company law despite many claims in favour of it being so. You are required to explain the nature of the business judgement rule and its operation in a number of contexts and to consider how, in combination with the statutory derivative claim it can be claimed to contribute to the enhancement of corporate governance.

Answer plan
Definition of the business judgement rule
Burden of proof required of shareholders contesting actions by corporate officers
Examples of operation of the rule in respect of negligence, take-overs and derivative claims
Justification for the adoption of the business judgement rule in the Corporations Law 2001 in Australia and its importance in conjunction with the statutory derivative action towards enhancing corporate governance
Consideration of the UK rejection of the need to adopt the business judgement rule and claimed advantages of its adoption

Suggested answer
While the Companies Act 2006 has introduced a statutory derivative claim, the Act does not include a statutory business judgement rule, and indeed, the concept is almost unknown in the UK. This answer will explain the concept of the business judgement rule and its origins and explain why, in combination with the statutory derivative claim, it could be seen as contributing to improved corporate governance.
The Business Judgement Rule (BJR) was initially developed in Delaware (USA) and operates to reduce the severity of the standard of care demanded of directors. The rule presumes that officers and directors have made all their business decisions on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the corporation, and places the burden of rebutting this presumption upon shareholders challenging the board. In order to overcome the presumption of the BJR, a plaintiff must prove that officers or directors have engaged in fraud, acted in bad faith, or made business decisions for their profit or betterment. The justification is that corporate matters are to be settled by the sound business judgement of the directors, and not be exposed to second-guessing by courts.
The BJR protects directors from liability for actions that turn out badly for the corporation. The most controversial case was Smith v Van Gorkom (Del 1985). Van Gorkom (VG) was the Chief Executive Officer (CEO) of a publicly-held corporation. During a review of its future, the possibility was discussed of selling it outright. VG contacted a corporate takeover specialist and social acquaintance, who offered to buy the corporation at $55 per share, the deal to be agreed in three days. VG presented the deal to the board as a matter of urgency and urged approval. The board approved without asking questions or extended discussion. VG then obtained shareholder approval without considering alternatives and the transaction was completed. VG signed the sale documents without reviewing them. The Delaware Supreme Court held that the directors had not adequately informed themselves about the company's value and were not entitled to protection of the BJR.
Following this decision, lawyers warned director/clients of the the risk of liability in the absence of a careful investigation and recommended a 'paper riail’ to show that atequate in vestigation had been made to comply with the BJR.
The BJR is important in respect of defensive steps taken to defeat takeover bids. In Panter v Marshall Field & Co (7th Cir 1981) Marshall Field, a department store, fought off a takeover bid by acquiring or opening additional stores creating an anti-trust problem for the suitor who then withdrew, and the shares in Marshall Field collapsed in value. Minority shareholders sued the directors for damages but the court applied the BJR. Another defence to takeover is the 'poison pill' which usually provides that if an outsider acquires a specified percentage of voting shares, the corporation will issue debt or equity securities to the remaining shareholders at a bargain price making it impractical for the suitor to gain control by market purchases. In Moran v Household International Inc (Del 1985) the court upheld the basic concept of the 'poison pill' in advance of a specific takeover attempt.
It is always possible for the court to find that the decision to take defensive measures involves a conflict of interest and is therefore not entitled to the protection of the B JR. Defensive tactics approved by the independent directors are more favourably regarded by the court.
The B JR also operates in respect of derivative claims by shareholders. Most states require plaintiffs to serve a written demand upon the corporation to take suitable action followed by a period of 90 days, unless the shareholder has been notified earlier that the demand has been rejected or unless irreparable injury to the corporation would result by waiting. The Delaware Supreme Court developed a set of rules allowing the independent litigation committees to dismiss derivative litigation on the basis of a business judgment that it was not in the best interests of the corporation. The scope of the power depends on whether the case is classified as 'demand required' or 'demand futile' (or 'demand excused'). The latter arises where the specific facts alleged establish a reasonable doubt that the directors' action was entitled to the protection of the BJR.
In 'demand futile' cases, if a litigation committee recommends that the litigation is not continued, a court review should establish (i) the committee's independence and absence of conflict of interest, (ii) whether the decision meets the BJR requirements, and (iii) whether in the court's own 'independent business judgement' the dismissal should be accepted. In a 'demand required' situation, the case will be dismissed if no demand is made and a decision by the litigation committee that the action should not be pursued is protected by the BJR and the court has no reviewing role. A judicial review of the rejection can only be obtained by the shareholder establishing that the decision was not protected by the B JR and is not entitled to discovery.
Under the B JR, a court presumes that directors act in good faith and there is divergence as to whether good faith is purely subjective or whether there is an objective element. In effect, most courts have employed a standard that involves some element of objective review. Where there is a conflict of interest between their personal interests and those of the corporation and its shareholders, directors are denied the protection of the B JR and must prove the 'entire fairness' of their business decision in any litigation.
The linking of the two statutory rights in seen most clearly in the Corporate Law Economic Reform Programme--Proposals for Reform (CLERPS) that led to the Australian Corporations Law 2001 in which they were both introduced. CLERPS states that 'any reform.., should provide an appropriate incentive for directors to behave properly without unduly fettering the exercise of their judgment or their enterprise' and that 'proposals for the introduction of a statutory business judgment "safe harbour" for directors and a statutory form of derivative action for shareholders are particularly relevant to the wider debate on corporate governance'.
The combination of the two is seen as the means by which efficient and effective corporate government may be achieved. On the one hand, directors and corporate officers want greater certainty in relation to their potential liabilities and on the other the investors want directors to be more accountable. The Australian legislators saw the combination statutory business judgement rule and derivative action as the answer. The statutory business judgement rule offers directors some protection from personal liability if they make honest, informed and rational business judgements while the statutory derivative action allows a shareholder or a director to bring an action on behalf of the company for a wrong done to the company, where the company is unable or unwilling to do so itself.
In deciding whether or not to have a statutory business judgement rule, an important consideration was the weight of judicial uncertainty about directors' liability and accountability. It was decided that this was a factor which contributed most to directors' conservative and risk-averse behaviour when carrying out their duties, and that such behaviour could only harm shareholders and the economy. Considering accounting and economic factors as well as legal ones, it was found that costs are increased because of directors' uncertainty about liability, and that from an economic point of view 'a statutory business judgement rule would provide an incentive for boards to adopt effective corporate governance practices that promote transparency, accountability and investor confidence' From a legal perspective, the statutory business judgement rule 'would clarify and confirm the position reached at common law that courts will rarely review bona fide business decisions' and 'would create more certainty for directors'.
In the discussion leading to the Companies Act 2006, the Law Commissions rejected the adoption of a statutory business judgement rule in the UK, arguing that the court has never interfered in business decisions. This view is often based on the statement in Re City Equitable Fire Insurance Co Ltd [1925] Ch 407 where Romer J stated: 'directors are not liable for mere errors of judgment'. In addition, the dual standard for the statutory duty of care can be argued to allow a degree of mitigation from the objective duty of care which in any event excludes consideration of 'any special qualification that a director has'.
In view, however, of the wide areas over which directors are required to exercise their duty of care, skill and diligence where the standards are infinitely variable, it could be argued that this is an opportunity missed. Claimed advantages of the business judgement rule are an enhancement and clarification of the process of decision-making; an increased awareness of the duties owed to the company; encouraging responsible risk taking with the comfort of knowing that decisions will not be second-guessed by the court if the requirements of the rule are met; and attracting a high calibre of directors and officers in the knowledge of the limits on their duty of care.

二、案例分析题
阅读下面UNOCAL案例,然后回答问题。

UNOCAL CORPORATION, a Delaware corporation, Defendant Below,
Appellant, v. MESA PETROLEUM CO., a Delaware corporation,
MESA ASSET CO., a Delaware corporation, MESA EASTERN, INC.,
a Delaware corporation, and MESA PARTNERS II, a Texas
partnership, Plaintiffs Below, Appellees
No. 152, 1985
Supreme Court of Delaware
OPINION BY: MOORE
OPINION: [*949] We confront an issue of first impression in Delaware -- the validity of a corporation's self-tender for its own shares which excludes from participation a stockholder making a hostile tender offer for the company's stock.
The Court of Chancery granted a preliminary injunction to the plaintiffs, Mesa Petroleum Co., Mesa Asset Co., Mesa Partners II, and Mesa Eastern, Inc. (collectively "Mesa") n1, enjoining an exchange offer of the defendant, Unocal Corporation (Unocal) for its own stock. [**2] The trial court concluded that a selective exchange offer, excluding Mesa, was legally impermissible. We cannot agree with such a blanket rule. The factual findings of the Vice Chancellor, fully supported by the record, establish that Unocal's board, consisting of a majority of independent directors, acted in good faith, and after reasonable investigation found that Mesa's tender offer was both inadequate and coercive. Under the circumstances the board had both the power and duty to oppose a bid it perceived to be harmful to the corporate enterprise. On this record we are satisfied that the device Unocal adopted is reasonable in relation to the threat posed, and that the board acted in the proper exercise of sound business judgment. We will not substitute our views for those of the board if the latter's decision can be "attributed to any rational business purpose." Sinclair Oil Corp. v. Levien, Del. Supr., 280 A.2d 717, 720 (1971). Accordingly, we reverse the decision of the Court of Chancery and order the preliminary injunction vacated. n2
n1 T. Boone Pickens, Jr., is President and Chairman of the Board of Mesa Petroleum and President of Mesa Asset and controls the related Mesa entities.
[**3]
n2 This appeal was heard on an expedited basis in light of the pending Mesa tender offer and Unocal exchange offer. We announced our decision to reverse in an oral ruling in open court on May 17, 1985 with the further statement that this opinion would follow shortly thereafter. See infra n.5.
I.
The factual background of this matter bears a significant relationship to its ultimate outcome. On April 8, 1985, Mesa, the owner of approximately 13% of Unocal's stock, commenced a two-tier "front loaded" cash tender offer for 64 million shares, or approximately 37%, of Unocal's outstanding stock at a price of $54 per share. The "back-end" was designed to eliminate the remaining publicly held shares by an exchange of securities purportedly worth $54 per share. However, pursuant to an order entered by the United States District Court for the Central District of California on April 26, 1985, Mesa issued a supplemental proxy statement to Unocal's stockholders disclosing that the securities offered in the second-step merger would be highly subordinated, and that Unocal's capitalization would differ [**4] significantly from its present [*950] structure. Unocal has rather aptly termed such securities "junk bonds". n3
[**5]
Unocal's board consists of eight independent outside directors and six insiders. It met on April 13, 1985, to consider the Mesa tender offer. Thirteen directors were present, and the meeting lasted nine and one-half hours. The directors were given no agenda or written materials prior to the session. However, detailed presentations were made by legal counsel regarding the board's obligations under both Delaware corporate law and the federal securities laws. The board then received a presentation from Peter Sachs on behalf of Goldman Sachs & Co. (Goldman Sachs) and Dillon, Read & Co. (Dillon Read) discussing the bases for their opinions that the Mesa proposal was wholly inadequate. Mr. Sachs opined that the minimum cash value that could be expected from a sale or orderly liquidation for 100% of
Unocal's stock was in excess of $60 per share. In making his presentation, Mr. Sachs showed slides outlining the valuation techniques used by the financial advisors, and others, depicting recent business combinations in the oil and gas industry. The Court of Chancery found that the Sachs presentation was designed to apprise the directors of the scope of the analyses performed rather than [**6] the facts and numbers used in reaching the conclusion that Mesa's tender offer price was inadequate.
Mr. Sachs also presented various defensive strategies available to the board if it concluded that Mesa's two-step tender offer was inadequate and should be opposed. One of the devices outlined was a self-tender by Unocal for its own stock with a reasonable price range of $70 to $75 per share. The cost of such a proposal would cause the company to incur $6.1 -- 6.5 billion of additional debt, and a presentation was made informing the board of Unocal's ability to handle it. The directors were told that the primary effect of this obligation would be to reduce exploratory drilling, but that the company would nonetheless remain a viable entity.
The eight outside directors, comprising a clear majority of the thirteen members present, then met separately with Unocal's financial advisors and attorneys. Thereafter, they unanimously agreed to advise the board that it should reject Mesa's tender offer as inadequate, and that Unocal should pursue a self-tender to provide the stockholders with a fairly priced alternative to the Mesa proposal. The board then reconvened and unanimously adopted [**7] a resolution rejecting as grossly inadequate Mesa's tender offer. Despite the nine and one-half hour length of the meeting, no formal decision was made on the proposed defensive self-tender.
On April 15, the board met again with four of the directors present by telephone [*951] and one member still absent. n4 This session lasted two hours. Unocal's Vice President of Finance and its Assistant General Counsel made a detailed presentation of the proposed terms of the exchange offer. A price range between $70 and $80 per share was considered, and ultimately the directors agreed upon $72. The board was also advised about the debt securities that would be issued, and the necessity of placing restrictive covenants upon certain corporate activities until the obligations were paid. The board's decisions were made in reliance on the advice of its investment bankers, including the terms and conditions upon which the securities were to be issued. Based upon this advice, and the board's own deliberations, the directors unanimously approved the exchange offer. Their resolution provided that if Mesa acquired 64 million shares of Unocal stock through its own offer (the Mesa Purchase Condition), [**8]
Unocal would buy the remaining 49% outstanding for an exchange of debt securities having an aggregate par value of $72 per share. The board resolution also stated that the offer would be subject to other conditions that had been described to the board at the meeting, or which were deemed necessary by Unocal's officers, including the exclusion of Mesa from the proposal (the Mesa exclusion). Any such conditions were required to be in accordance with the "purport and intent" of the offer.
[**9]
Unocal's exchange offer was commenced on April 17, 1985, and Mesa promptly challenged it by filing this suit in the Court of Chancery. On April 22, the Unocal board met again and was advised by Goldman Sachs and Dillon Read to waive the Mesa Purchase Condition as to 50 million shares. This recommendation was in response to a perceived concern of the shareholders that, if shares were tendered to Unocal, no shares would be purchased by either offeror. The directors were also advised that they should tender their own Unocal stock into the exchange offer as a mark of their confidence in it.
Another focus of the board was the Mesa exclusion. Legal counsel advised that under Delaware law Mesa could only be excluded for what the directors reasonably believed to be a valid corporate purpose. The directors' discussion centered on the objective of adequately compensating shareholders at the "back-end" of Mesa's proposal, which the latter would finance with "junk bonds". To include Mesa would defeat that goal, because under the proration aspect of the exchange offer (49%) every Mesa share accepted by Unocal would displace one held by another stockholder. Further, if Mesa were permitted [**10] to tender to Unocal, the latter would in effect be financing Mesa's own inadequate proposal.
On April 24, 1985 Unocal issued a supplement to the exchange offer describing the partial waiver of the Mesa Purchase Condition. On May 1, 1985, in another supplement, Unocal extended the withdrawal, proration and expiration dates of its exchange offer to May 17,
1985.
Meanwhile, on April 22, 1985, Mesa amended its complaint in this action to challenge the Mesa exclusion. * * *
After the May 8 hearing the Vice Chancellor issued an unreported opinion on May 13, 1985 granting Mesa a preliminary injunction. Specifically, the trial court noted that "the parties basically agree that the directors' duty of care extends to protecting the corporation from perceived harm whether it be from third parties or shareholders." The trial court also concluded in response to the second inquiry in the Supreme Court's May 2 order, that "although the facts, …do not appear to be sufficient to prove that Mesa's principle objective is to be bought off at a substantial premium, they do justify a reasonable inference to the same effect."
* * *
II.
The issues we address involve these fundamental questions: Did the Unocal board have the power and duty to oppose a takeover threat it reasonably perceived to be harmful to the corporate enterprise, [**15] and if so, is its action here entitled to the protection of the business judgment rule?
* * *
III.
We begin with the basic issue of the power of a board of directors of a Delaware corporation to adopt a defensive measure of this type. Absent such authority, all other questions are moot. Neither issues of fairness nor business judgment are pertinent without the basic underpinning of a board's legal power to act.
The board has a large reservoir of authority upon which to draw. Its duties and responsibilities proceed from the inherent powers conferred by 8 Del.C. § 141(a), respecting management of the corporation's "business and affairs". n6 Additionally, the powers here being exercised derive from 8 Del.C. § 160(a), conferring broad authority upon a corporation to deal in its own stock. n7 From this it is now well established that in the acquisition of its shares a [*954] Delaware corporation may deal selectively with its stockholders, provided the directors have not acted out of a sole or primary purpose to entrench themselves in office.
Finally, the board's power to act derives from its fundamental duty and obligation to protect the corporate enterprise, which includes stockholders, from harm reasonably perceived, irrespective of its source. Thus, we are satisfied that in the broad context of corporate governance, including issues of fundamental corporate change, a board of directors is not a passive instrumentality.
[**19]
Given the foregoing principles, we turn to the standards by which director action is to be measured. In Pogostin v. Rice, Del. Supr., 480 A.2d 619 (1984), we held that the business judgment rule, including the standards by which director conduct is judged, is applicable in the context of a takeover. Id. at 627. The business judgment rule is a "presumption that in making a business decision the directors of a corporation acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company." Aronson v. Lewis, Del. Supr., 473 A.2d 805,812 (1984) (citations omitted). A hallmark of the business judgment rule is that a court will not substitute its judgment for that of the board if the latter's decision can be "attributed to any rational business purpose." Sinclair Oil Corp. v. Levien, Del. Supr., 280 A.2d 717, 720 (1971).
When a board addresses a pending takeover bid it has an obligation to determine whether the offer is in the best interests of the corporation and its shareholders. In that respect a board's duty is no different from any other responsibility it shoulders, and its decisions should be no less [**20] entitled to the respect they otherwise would be accorded in the realm of business judgment. n9 See also Johnson v. Trueblood, 629 F.2d 287, 292-293 (3d Cir. 1980). There are, however, certain caveats to a proper exercise of this function. Because of the omnipresent specter that a board may be acting primarily in its own interests, rather than those of the corporation and its shareholders, there is an enhanced duty which calls for judicial examination at the threshold before the protections of the business judgment rule may be conferred.
[**21]
This Court has long recognized that:
We must bear in mind the inherent danger in the purchase of shares with corporate funds to remove a threat to corporate policy when a threat to control is involved. The directors are of necessity confronted with a conflict of interest, and an objective decision is difficult.
Bennett v. Propp, Del. Supr., 41 Del. Ch. 14, 187 A.2d 405, 409 (1962). In the face of this inherent conflictdirectors must show that they had reasonable grounds forbelieving that a danger to corporate policy andeffectiveness existed because of another person's stockownership. Cheff v. Mathes, 199 A.2d at 554-55. However, they satisfy that burden "by showing goodfaith and reasonable investigation. . . ." Id. at 555. Furthermore, such proof is materially enhanced, as here,by the approval of a board comprised of a majority ofoutside independent directors who have acted inaccordance with the foregoing standard

IV.
A.
In the board's exercise of corporate [**22] power to forestall a takeover bid our analysis begins with the basic principle that corporate directors have a fiduciary duty to act in the best interests of the corporation's stockholders. Guth v. Loft, Inc., Del. Supr., 23 Del. Ch. 255, 5 A.2d 503, 510 (1939). As we have noted, their duty of care extends to protecting the corporation and its owners from perceived harm whether a threat originates from third parties or other shareholders. n10 But such powers are not absolute. A corporation does not have unbridled discretion to defeat any perceived threat by any Draconian means available.
The restriction placed upon a selective [**23] stock repurchase is that the directors may not have acted solely or primarily out of a desire to perpetuate themselves in office. See Cheff v. Mathes, 199 A.2d at 556; Kors v. Carey, 158 A.2d at 140. Of course, to this is added the further caveat that inequitable action may not be takenunder the guise of law. Schnell v. Chris-Craft Industries, Inc., Del. Supr., 285 A.2d 437, 439 (1971). The standard of proof established in Cheff v. Mathes and discussed supra at page 16, is designed to ensure that a defensive measure to thwart or impede a takeover is indeed motivated by a good faith concern for the welfare of the corporation and its stockholders, which in all circumstances must be free of any fraud or other misconduct. Cheff v. Mathes, 199 A.2d at 554-55. However, this does not end the inquiry.
B.
A further aspect is the element of balance. If a defensive measure is to come within the ambit of the business judgment rule, it must be reasonable in relation to the threat posed. This entails an analysis by the directors of the nature of the takeover bid and its effect on the corporate enterprise. Examples of such concerns may include: inadequacy of the [**24] price offered, nature and timing of the offer, questions of illegality, the impact on "constituencies" other than shareholders (i.e., creditors, customers, employees, and perhaps even the community generally), the risk of nonconsummation, and the quality of securities being offered in the exchange. See Lipton and Brownstein, Takeover Responses and Directors' Responsibilities: An Update, p.7, ABA National Institute on the Dynamics of Corporate Control
(December 8, 1983). While not a controlling factor, it also seems to us that a board may reasonably consider the basic stockholder [*956] interests at stake, including those of short term speculators, whose actions may have fueled the coercive aspect of the offer at the expense of the long term investor. n11 Here, the threat posed was viewed by the Unocal board as a grossly inadequate two-tier coercive tender offer coupled with the threat of greenmail.
[**25]
Specifically, the Unocal directors had concluded that the value of Unocal was substantially above the $54 per share offered in cash at the front end. Furthermore, they determined that the subordinated securities to be exchanged in Mesa's announced squeeze out of the remaining shareholders in the "back-end" merger were "junk bonds" worth far less than $54. It is now well recognized that such offers are a classic coercive measure designed to stampede shareholders into tendering at the first tier, even if the price is inadequate, out of fear of what they will receive at the back end of the transaction. n12 Wholly beyond the coercive aspect of an inadequate two-tier tender offer, the threat was posed by a corporate raider with a national reputation as a "greenmailer". n13
In adopting the selective exchange offer, the board stated that its objective was either to defeat the inadequate Mesa offer or, should the offer still succeed, provide the 49% of its stockholders, who would otherwise be forced to accept "junk bonds", with $72 worth of senior debt. We find that both purposes are valid.
However, such efforts would have been thwarted by Mesa's participation in the exchange offer. First, if Mesa could tender its shares, Unocal would effectively be subsidizing the former's [**27] continuing effort to buy Unocal stock at $54 per share. Second, Mesa could not, by definition, fit within the class of shareholders being protected from its own coercive and inadequate tender offer.
Thus, we are satisfied that the selective exchange offer is reasonably related to the threats posed. It is consistent with the principle that "the minority stockholder shall receive the substantial equivalent in value of what he had before." Sterling v. Mayflower Hotel Corp., Del. Supr., 33 Del. Ch. 293, 93 A.2d 107, 114 (1952). See also Rosenblatt v. Getty Oil Co., Del.Supr., 493 A.2d 929, 940 (1985). This concept of fairness, while stated in the merger context, is also relevant [*957] in the area of tender offer law. Thus, the board's decision to offer what it determined to be the fair value of the corporation to the 49% of its shareholders, who would otherwise be forced to accept highly subordinated "junk bonds", is reasonable and consistent with the directors' duty to ensure that the minority stockholders receive equal value for their shares.
V.
Mesa contends that it is unlawful, and the trial court agreed, for a corporation to discriminate in this fashion against [**28] one shareholder. It argues correctly that no case has ever sanctioned a device that precludes a raider from sharing in a benefit available to all other stockholders. However, as we have noted earlier, the principle of selective stock repurchases by a Delaware corporation is neither unknown nor unauthorized. The only difference is that heretofore the approved transaction was the payment of "greenmail" to a raider or dissident posing a threat to the corporate enterprise. All other stockholders were denied such favored treatment, and given Mesa's past history of greenmail, its claims here are rather ironic.
* * *
Thus, while the exchange offer is a form of selective treatment, given the nature of the threat posed here the response is neither unlawful nor unreasonable. If the board of directors is disinterested, has acted in good faith and with due care, its decision in the absence of an abuse of discretion will be upheld as a proper exercise of business judgment.
* * *
Mesa also argues that the exclusion permits the directors to abdicate the fiduciary duties they owe it. However, that is not so. The board continues to owe Mesa the duties of due care and loyalty. But in the face of the destructive threat Mesa's tender offer was perceived to pose, the board had a supervening duty to protect the corporate enterprise, which includes the other shareholders, from threatened harm.
Mesa contends that the basis of this action is punitive, and solely in response to the exercise of its rights of corporate democracy. n14 Nothing precludes Mesa, as a stockholder, from acting in its own self-interest. However, Mesa, while pursuing its own interests, has acted in a manner which a board consisting of a majority of independent directors has reasonably determined to be contrary to the best interests of Unocal and its other shareholders. In this situation, there is no support in Delaware law for the proposition that, when responding to a perceived harm, a corporation must guarantee a 9 benefit to a stockholder who is deliberately provoking the danger being addressed. There is no obligation of self-sacrifice by a corporation and its shareholders in the face of such a challenge.
[**33]
Here, the Court of Chancery specifically found that the "directors' decision [to oppose the Mesa tender offer] was made in the good faith belief that the Mesa tender
offer is inadequate." Given our standard of review under Levitt v. Bouvier, Del. Supr., 287 A.2d 671, 673 (1972), and Application of Delaware Racing Association, Del. Supr., 42 Del. Ch. 406, 213 A.2d 203, 207 (1965), we are satisfied that Unocal's board has met its burden of proof. Cheff v. Mathes, 199 A.2d at 555.
VI.
In conclusion, there was directorial power to oppose the Mesa tender offer, and to undertake a selective stock exchange made in good faith and upon a reasonable investigation pursuant to a clear duty to protect the corporate enterprise. Further, the selective stock repurchase plan chosen by Unocal is reasonable in relation to the threat that the board rationally and reasonably believed was posed by Mesa's inadequate and coercive two-tier tender offer. Under those circumstances the board's action is entitled to be measured by the standards of the business judgment rule. Thus, unless it is shown by a preponderance of the evidence that the directors' decisions were primarily based on perpetuating [**34] themselves in office, or some other breach of fiduciary duty such as fraud, overreaching, lack of good faith, or being uninformed, a Court will not substitute its judgment for that of the board.
In this case that protection is not lost merely because Unocal's directors have [*959] tendered their shares in the exchange offer. Given the validity of the Mesa exclusion, they are receiving a benefit shared generally by all other stockholders except Mesa. In this circumstance the test of Aronson v. Lewis, 473 A.2d at 812, is satisfied. See also Cheff v. Mathes, 199 A.2d at 554. If the stockholders are displeased with the action of their elected representatives, the powers of corporate democracy are at their disposal to turn the board out. Aronson v. Lewis, Del. Supr., 473 A.2d 805, 811 (1984). See also 8 Del.C. §§ 141(k) and 211(b).
With the Court of Chancery's findings that the exchange offer was based on the board's good faith belief that the Mesa offer was inadequate, that the board's action was informed and taken with due care, that Mesa's prior activities justify a reasonable inference that its principle objective was greenmail, and implicitly, that the [**35] substance of the offer itself was reasonable and fair to the corporation and its stockholders if Mesa were included, we cannot say that the Unocal directors have acted in such a manner as to have passed an "unintelligent and unadvised judgment". Mitchell v. Highland-Western Glass Co., Del. Ch., 19 Del. Ch. 326, 167 A. 831, 833 (1933). The decision of the Court of Chancery is therefore REVERSED, and the preliminary injunction is VACATED.

QUESTIONS

  • What evidence did the board have that Unocal’s stock was worth as much as $72? Note that the investment bankers only opined that it was worth more than $60 in a sale or orderly liquidation. Was this an informed business judgment of the kind the court seems to require?
  • What basis could investment bankers have for asserting that a bid above the previous market value for the company was inadequate? Do the readings in chapter 2 provide suggestions?

三、比较论述题
根据国外上市公司收购制度的相关规定,论述如何完善我国上市公司收购制度?

参考答案:
上市公司收购是指收购人通过证券交易所的股份转让活动持有一个上市公司的股份达到一定比例,或通过股份转让活动以外的合法途径控制一个上市公司的股份达到 一定程度,导致其获得或者可能获得对该公司的实际控制权,进而实现对该上市公司的兼并或实现其他产权交易的行为。
从法律意义上讲,收购是通过购买完成对某一上市公司股份量的积累从而获得或可能获得对该公司的实际控制权。是在市场竞争规律作用下,为实现规模经济的扩张 需要,在公司之间有偿转让公司产权的法律行为。通过不同资源的整合提高上市公司创造价值的能力和可持续发展的能力,因而是证券市场中最能体现其市场效率和 最具有创新活力的一环。
美、英两国公司收购制度代表了西方主要市场经济国家的立法模式,意义深远,影响广泛。由于市场环境的不同,立法与监管机制的差异,价值观与方法论的区别, 上市公司收购立法的模式不尽相同。但无论是以《威廉姆斯法案》为代表的美国模式,还是以《城市法典》为代表的英国模式,其立法的共同点都是解决以下问题: 首先,对上市公司收购行为,确立合理、公正的价值观,正确评判利与弊,在趋利除弊中寻求平衡点。其次,公司收购法律要平衡与协调诸多主体之间的利益关系, 妥善解决、协调收购人和目标公司股东之间的利益关系,重点保护上市公司股东尤其是小股东的利益,防止操纵市场、内幕交易,以建立稳定的市场秩序。最后,要 在正确的价值观和主体利益的平衡中,对上市公司收购制度进行精细设计,保持相当的灵活性与开放性,并将信息公开原则在公司收购中贯彻始终。
目前我国上市公司收购法律虽然己初具规模,但是其问题仍然突出:首先是立法散乱、效力层级低、缺乏系统性、内容不完善,并且被称为企业并购两大支柱法律的 《反垄断法》和《上市公司收购法》仍然缺失;其次是法律法规相互矛盾,各个层级法律法规相互冲突,操作性不强,尤其是在以下这些问题上的规定存在明显的不 足并急需加以完善:
1、一致行动人的法律定义。一致行动人在我国的立法中尚属空白,但我国证券市场上的每次收购几乎都涉及到一致行动人的问题。上市公司收购中如何认定一致行 动人不仅影响到股东权利的保护、公司控制权的转移、信息披露义务的履行,还决定了是否触发全面的要约收购义务。为此,建议引用英、美国家的“一致行动人” 概念,弥补我国上市公司收购法律的不足。对一致行动人定义可理解为:“一家公司的母公司、子公司,同属于一个集团的并列公司及上述公司的联营公司;公司的 任何股东、董事、其他高层管理人员和合伙人,属于上述人等无论是明示还是默认均可构成一致行动人。如果非属上述范围人,要成为一致行动人,则应该订有一定 的行动契约。”
2、股东平等待遇的保证。我国《证券法》规定,当收购人持有目标公司股票达到一定标准之后.应当依法向该上市公司所有股东发出收购要约,收购要约中提出的 各种收购条件,适用于被收购公司所有股东。但是法律未对收购人按比例接纳加以规定,这必然不能确保目标公司股东平等出售所持股票,有损目标公司中小股东的 利益。因为在上市公司收购中,收购人仅是为了控制目标公司,所以为了实现预定的收购比例,收购人更愿意受让能左右公司控制权的大股东所持有的股份。针对这 种情况,为维护中小股东的利益,美、英国家均规定了按比例接纳的原则。我国应在收购法律制度中规定按比例接纳规则,以利于保证目标公司股东的平等待遇。
3、强制要约义务的豁免。我国《证券法》规定,当收购人持有目标公司股票达一定数量以后,必须向全体股东发出要约,但“经国务院证券监督管理机构免除发出 要约的除外”。这是一种笼统而含糊的规定,其操作性不强。在国外规定强制要约收购制度的国家,均规定了可以豁免强制要约收购义务的情况。英国《城市法典》 对豁免的条件进行了详细规定,并需向监管部门报批豁免申请。我国虽然规定经证监会批准可以豁免,但是并未规定具体的豁免条件,没有操作标准,无法避免此种 行为中的“暗箱操作”,增加了社会的腐败。
4、目标公司管理层的信息披露。目标公司管理层面临收购时,同意收购或反对收购必选其一。当出于对自身利益的考虑,希望收购人收购失败时,一般会对目标公 司的经营状况夸大其词,为目标公司股东拒绝收购出具依据。反之,收购人也有可能通过许诺某种利益来诱使管理层支持收购。法律应该强行规定目标公司管理层对 目标公司有关收购信息的披露,包括经营,财务状况和目标公司经营管理层所享受到的收购人所给予的利益。然而,我国的立法仅规定了收购人的信息披露义务,未 对目标公司管理层的信息披露义务做出规定,这就使得目标公司管理层在公司收购中失去制约,也使得股东无法了解目标公司的真实情况,难于做出价值判断。我们 应借鉴英、美国家的立法.对目标公司管理层的信息披露义务进行相应规定。
5、对反收购措施的控制。面临一项收购时,目标公司管理层为了自身的利益,会采取一系列反收购措施。美国在判例法中确认目标公司董事局有权采取反收购措 施,这种反收购措施是否采用,由董事局自由裁量,但必须考虑到如何才有利于目标公司,而且还要顾及公司雇员、俄权人、消费者和公司所在社区的利益。而英国 《城市法典》的规定则有很大差别,在未得到目标公司股东大会批准之前,目标公司的董事局不得采取任何阻挠措施反对收购人的要约。我国对反收购措施未加规 定,但随着我国上市公司数量的增加,反收购行为是否能够行使,及如何行使将是一个无法回避的问题。由于我国目前的公司治理结构中,股东、董事和经理的义务 机制尚未真正建立,股东权特别是中小股东权的保护意识薄弱,股东的代表诉讼制度缺位,因此决定了我国在今后一定时期内不应将反收购的决定权交由萤事会行 使,而应效仿英国,由股东大会决定是否采取反收购措施。

Test B
一、论述题
The need for quoted companies to have independent, non-executive directors is a major requirement of the corporate governance regime.
Analyse the role of the non-executive directors, the skills required, and their independence. In addition, consider possible reasons for refusal to act as non-executives.

 

Commentary
The role of the non-executive director has increased in scope for listed companies and there is a distinction made between non-executives and independent non-executives which is now of great importance. In this question you are required to identify the role of the non-executive in a company and to identify the skills required of such a person. The question also requires you to consider the criteria for assessing whether non-executives are independent, a point that is important in respect of their appointment to the audit committee. The last part of the question requires you to consider the duty of care imposed on non-executives and consider whether this can discourage people from accepting appointment as non-executives.

Answer plan
The role of the non-executive director
The skills and knowledge required of a non-executive director
The criteria for judging independence of non-executive directors
The liability of non-executive directors and its possible effect on recruitment

Suggested answer
The non-executive director is often described as having two roles: monitoring executive activity and contributing to strategic development. In both the Cadbury Report and the Hampel Report it was felt that there was some tension between these two elements. However, research referred to in the Higgs Report based on a number of in-depth interviews with directors, found that, in spite of some tension there was no essential contradiction between the two roles. The research identified, however, dangers in non- executives concentrating too much on one aspect of their role. Thus an overemphasis on monitoring and control carried the risk of non-executives seeing themselves--and being seen--as alien policing influences detached from the rest of the board. On the other hand, overemphasis on the strategic development aspect carried the risk of non- executives becoming too close to the executive, and therefore undermining shareholder confidence in the effectiveness of board governance.
From the research, it emerged that it was necessary for non-executives to work in a spirit of partnership and mutual respect to gain recognition by the executives of their contribution. The Report highlighted the fact that the 1998 Code offered no guidance on the role of the non-executive director and that lack of clarity of their role had been a recurrent theme in submissions and interviews. As a result, the Code now states that non-executive directors should constructively challenge and help develop proposals on strategy; should scrutinize the performance of management in meeting agreed goals and objectives, and monitor the reporting of performance. In addition, they should satisfy themselves on the integrity of financial information and that financial control and systems of risk management are robust and defensible. They are also responsible for determining the appropriate levels of remuneration of executive directors and have a prime role in appointing, and where necessary removing, executive directors. They are also involved in succession planning.
In respect of financial control, the significance of the requirement that the audit committee should be composed of at least three non-executives, all of whom should be independents is important; as is the requirement for the remuneration committee to be comprised of non-executive directors.
Non-executives must acquire the expertise and knowledge to discharge their duties effectively. They must be well-informed about the business, the environment in which it operates and the issues it faces. This requires knowledge, not only of the company itself, but of the markets in which it operates. In this respect the requirements of non-executives are integrity and high ethical standards in common with all persons acting as directors. They also need to have sound judgement and must be willing to enquire and probe in order to obtain satisfactory answers within the board. They also require strong interpersonal skills since their effectiveness depends on the influence they exert and not on their power to give orders.
The Code also establishes the role of the senior independent non-executive director (senior independent director). The senior independent director should be identified in the annual, report and the chairman of the company should hold meetings with the senior independent director and the non-executives in the absence of the executive directors. And, in the absence of the chairman and led by the independent senior directors, the non-executive directors should meet at least annually to appraise the chairman's performance.
While accepting that it is not possible for all non-executive directors to be inde- pendent-particularly in smaller listed companies--at least a proportion of the non-executive directors should be independent. The requirement for a greater degree of independence on boards was a theme in US corporate governance reform and the Sarbanes-Oxley Act (USA) requires all members of the audit committee to be independent. In addition under NASDAQ and the NYSE listing rules, there is a requirement that the majority of the board should be independent. The Bouton report on corporate governance in France also recommended that half the board should be independent: Following the Higgs Report, the Combined Code gives a definition of independence (A.3.1).
Under this provision, the board is required to identify in the annual report each noni executive director it considers to be independent. The board should state its reasons if it decides that a director is independent in spite of the existence of relationships or circumstances which may appear relevant to this including:
   (a) if the person has been an employee of the company or group within the last five years;
   (b) has or had with the last three years a material business relationship directly or indirectly--with the company;
   (c) has received or receives additional remuneration from the company apart from director's fee, participates in the company's share option or a performance-related pay scheme, or is a member of the company's pension scheme;
   (d) has close family ties with any of the company's advisers, directors, or senior employees;
   (e) holds cross-directorships or has significant links with other directors through involvement in other companies or bodies;
   (f) represents a significant shareholder; or
   (g) has served on the board for more than nine years from the date of their first election.
Except for smaller companies, defined as one below the FTSE 350 in the prior financial year, at least half the board, excluding the chairman, should be independent non- executive directors and a smaller company should have at least two independent non-executives.
An important issue for persons considering acting as non-executive directors is the question of their liability to the company. In the UK the duty of care, skill, and diligence owed by directors, executive and non-executive, is the same. This was established in Dorchester Finance Co Ltd v Stehbing [1989] BCLC 498. The Higgs Review set out a new schedule 'Guidance on liability of non-executive directors: care, skill and diligence' to be annexed to the Combined Code. This accepts that executive directors and non-executives have the same legal duties and objectives as board members but indicates that different levels of expectation in respect of time devoted to company affairs and the detailed knowledge and experience that could reasonably be expected of a non-executive will generally be less than for an executive director and that: 'These matters may be relevant in assessing the knowledge, skill and experience which may reasonably be expected of a non-executive director.'
The same position is adopted in Australia as seen in Daniels v Anderson (1995) 13 ACLC 614 where the appeal court overruled the high court's finding that non-executive
Further reading directors should be judged by a lower standard of care. This decision was instrumental in causing the inclusion of a statutory business judgement rule into the Corporations Law 2001 to mitigate the objective duty of care imposed on directors of all types. The rule presumes that directors have made all their business decisions on an informed basis, in good faith and in the honest belief that the action taken was in the company's best interest and places the burden of rebutting this on shareholders challenging the board.
It is clear that the possibility of liability for breach of the duty of care is a factor that can make people think twice about becoming a director, executive or non-executive, of a company. The executive and non-executive directors of Equitable Life faced a negligence claim for more than ~1bn over the company's near collapse. Although the case was later dropped, it made many people less ready to accept non-executive positions. This was also seen in the USA following the decision by the Delaware Supreme Court in Smith v Van Gorkom (Del 1985) that there no distinction between the liability of executive and independent, non-executive directors. This resulted in many people refusing to accept to be independent directors.
In conclusion, non-executive directors have an important role to play in the corporate governance of listed companies and are required to be strong enough to stand up to the executive directors but in a sensitive way so as to maintain a mutual sense of trust. Following the finding of the Higgs Report that almost 50 per cent of non-executives were recruited though personal contacts, and that only 4 per cent had been formally interviewed, the position is now more formalized. In addition, although most non- executives still come from the business world, there is a move to encourage candidates from other walks of life: the armed forces, charities, and the public sector.

二、案例分析题
阅读下面PARAMOUNT案例,然后回答问题。

PARAMOUNT COMMUNICATIONS, INC. and KDS ACQUISITIONS CORP., Plaintiffs Below,
Appellants,
v.
TIME INCORPORATED, T.W. SUB, JAMES F. BERE, HENRY C. GOODRICH, CLIFFORD J. GRUM, MATINA S. HORNER, DAVID T. KEARNS, GERALD M. LEVIN, J. RICHARD, N.J. NICHOLAS, JR., DONALD S. PERKINS, CLIFTON R. WHARTON, MICHAEL D. FINKELSTEIN, HENRY LUCE III, JASON D. McMANUS, JOHN R. OPEL, AND WARNER COMMUNICATIONS, INC., Defendants Below, Appellees. LITERARY PARTNERS, L.P., CABLEVISION MEDIA PARTNERS, L.P., AND A. JERROLD PERENCHIO, Plaintiffs Below, Appellants, v. TIME INCORPORATED, TW SUB INC., JAMES F. BERE, MICHAEL D. DINGMAN, EDWARD S. FINKELSTEIN, MATINA S. HORNER, DAVID T. KEARNS, GERALD M. LEVIN, HENRY LUCE III, JASON D. McMANUS, J. RICHARD MUNRO, N.J. NICHOLAS, JR., JOHN R. OPEL, DONALD S. PERKINS, AND WARNER COMMUNICATIONS, INC., Defendants Below, Appellees. IN RE: TIME INCORPORATED
SHAREHOLDER LITIGATION
SUPREME COURT OF DELAWARE
HORSEY, J.
Paramount Communications, Inc. ("Paramount") and two other groups of plaintiffs *n1 ("Shareholder Plaintiffs"), shareholders of Time Incorporated ("Time"), a Delaware corporation, separately filed suits in the Delaware Court of Chancery seeking a preliminary injunction to halt Time's tender offer for 51% of Warner Communication, Inc.'s ("Warner") outstanding shares at $70 cash per share. The court below consolidated the cases and, following the development of an extensive record, after discovery and an evidentiary hearing, denied plaintiffs' motion. In a 50-page unreported opinion and order entered July 14, 1989, the Chancellor refused to enjoin Time's consummation of its tender offer, concluding that the plaintiffs were unlikely to prevail on the merits.
***
I
Time is a Delaware corporation with its principal offices in New York City. Time's traditional business is publication of magazines and books; however, Time also provides pay television programming through its Home Box Office, Inc. and Cinemax subsidiaries. In addition, Time owns and operates cable Paramount Communications, Inc. v. Time, Inc., 571 A.2d 1140 (Del. Ch., 1989) television franchises through is subsidiary, American Television and Communication Corporation. During the relevant time period, Time's board consisted of sixteen directors. Twelve of the directors were "outside," non-employee directors. Four of the directors were also officers of the company. The outside directors included: James F. Bere, chairman of the board and CEO of Borg-Warner Corporation (Time director since 1979); Clifford J. Grum, president and CEO of Temple-Inland, Inc. (Time director since 1980); Henry C. Goodrich, former chairman of Sonat, Inc. (Time director since 1978); Matina S. Horner, then president of Radcliffe College (Time director since 1975); David T. Kearns, chairman and CEO of Xerox Corporation (Time director since 1978); Donald S. Perkins, former chairman of Jewel Companies, Inc. (Time director since 1979); Michael D. Dingman, chairman and CEO of The Henley Group, Inc. (Time director since 1978); Edward S. Finkelstein, chairman and CEO of R.H. Macy & Co. (Time director since 1984); John R. Opel, former chairman and CEO of IBM Corporation (Time director since 1984); Arthur Temple, chairman of Temple-Inland, Inc. (Time director since 1983); Clifton R. Wharton, Jr., chairman and CEO of Teachers Insurance and Annuity Association --College Retirement Equities Fund (Time director since 1982); and Henry R. Luce III, president of The Henry Luce Foundation Inc. (Time director since 1967). Mr. Luce, the son of the founder of Time, individually and in a representative capacity controlled 4.2% of the outstanding Time stock. The inside officer directors were: J. Richard Munro, Time's chairman and CEO since 1980: N.J. Nicholas, Jr., president and chief operating officer of the company since 1986; Gerald M. Levin, vice chairman of the board; and Jason D. McManus, editor-in-chief of Time magazine and a board member since 1988. *n3
As early as 1983 and 1984, Time's executive board began considering expanding Time's operations into the entertainment industry. In 1987, Time established a special committee of executives to consider and propose corporate strategies for the 1990s. The consensus of the committee was that Time should move ahead in the area of ownership and creation of video programming. This expansion, as the Chancellor noted, was predicated upon two considerations: first, Time's desire to have greater control, in terms of quality and price, over the film products delivered by way of its cable network and franchises; and second, Time's concern over the increasing globalization of the world economy. Some of Time's outside directors, especially Luce and Temple, had opposed this move as a threat to the editorial integrity and journalistic focus of Time. *n4 Despite this concern, the board recognized that a vertically integrated video enterprise to complement Time's existing HBO and cable networks would better enable it to compete on a global basis.
In late spring of 1987, a meeting took place between Steve Ross, CEO of Warner Brothers, and Nicholas of Time. Ross and Nicholas discussed the possibility of a joint venture between the two companies through the creation of a jointly-owned cable company. Time would contribute its cable system and HBO. Warner would contribute its cable system and provide access to Warner Brothers Studio. The resulting venture would be a larger, more efficient cable network, able to produce and distribute its own movies on a worldwide basis. Ultimately the parties abandoned this plan, determining that it was impractical for several reasons, chief among them being tax considerations.
On August 11, 1987, Gerald M. Levin, Time's vice chairman and chief strategist, wrote J. Richard Munro a confidential memorandum in which he strongly recommended a strategic consolidation with Warner. In June 1988, Nicholas and Munro sent to each outside director a copy of the "comprehensive long-term planning document" prepared by the committee of Time executives that had been examining strategies for the 1990s. The memo included reference to and a description of Warner as a potential acquisition candidate.
Thereafter, Munro and Nicholas held meetings with Time's outside directors to discuss, generally, long-term strategies for Time, and specifically, a combination with Warner. Nearly Paramount Communications, Inc. v. Time, Inc., 571 A.2d 1140 (Del. Ch., 1989) a year later, Time's board reached the point of serious Discussion of the "nuts and bolts" of a consolidation with an entertainment company. On July 21, 1988, Time's board met, with all outside directors present. The meeting's purpose was to consider Time's expansion into the entertainment industry on a global scale. Management presented the board with a profile of various entertainment companies in addition to Warner, including Disney, 20th Century Fox, Universal, and Paramount.
Without any definitive decision on choice of a company, the board approved in principle a strategic plan for Time's expansion. The board gave management the "go-ahead" to continue Discussions with Warner concerning the possibility of a merger. With the exception of Temple and Luce, most of the outside directors agreed that a merger involving expansion into the entertainment field promised great growth opportunity for Time. Temple and Luce remained unenthusiastic about Time's entry into the entertainment field. See supra note 2.
The board's consensus was that a merger of Time and Warner was feasible, but only if Time controlled the board of the resulting corporation and thereby preserved a management committed to Time's journalistic integrity. To accomplish this goal, the board stressed the importance of carefully defining in advance the corporate governance provisions that would control the resulting entity. Some board members expressed concern over whether such a business combination would place Time "in play." The board discussed the wisdom of adopting further defensive measures to lessen such a possibility. *n5
Of a wide range of companies considered by Time's board as possible merger candidates, Warner Brothers, Paramount, Columbia, M.C.A., Fox, MGM, Disney, and Orion, the board, in July 1988, concluded that Warner was the superior candidate for a consolidation. Warner stood out on a number of counts. Warner had just acquired Lorimar and its film studios. Time-Warner could make movies and television shows for use of HBO. Warner had an international distribution system, which Time could use to sell films, videos, books and magazines. Warner was a giant in the music and business an area into which Time wanted to expand. None of the other companies considered had the musical clout of Warner. Time and Warner's cable systems were compatible and could be easily integrated; none of the other companies considered presented such a compatible cable partner. Together, Time and Warner would control half of New York City's cable system; Warner had cable systems in Brooklyn and Queens; and Time controlled cable systems in Manhattan and Queens. Warner's publishing company would integrate well with Time's established publishing company. Time sells hardcover books and magazines, and Warner sells softcover books and comics. *n6 Time-Warner could sell all of these publications and Warner's videos by using Time's direct mailing network and Warner's international distribution system. Time's network could be used to promote and merchandise Warner's movies.
In August 1988, Levin, Nicholas, and Munro, acting on instructions from Time's board, continued to explore a business combination with Warner. By letter dated August 4, 1988, management informed the outside directors of proposed corporate governance provision to be discussed with Warner. The provisions incorporated the recommendations of several of Time's outside directors.
From the outset, Time's board favored an all-cash or cash and securities acquisition of Warner as the basis for consolidation. Bruce Wasserstein, Time's financial advisor, also favored an outright purchase of Warner. However, Steve Ross, Warner's CEO, was adamant that a business combination was only practicable on a stock-for-stock basis. Warner insisted on a stock swap in order to preserve its shareholders' equity in the resulting corporation. Time's officers, on the other hand, made it abundantly clear that Time would be the acquiring corporation and that Time would control the resulting board. Time refused to permit itself to be cast as the "acquired" Paramount Communications, Inc. v. Time, Inc., 571 A.2d 1140 (Del. Ch., 1989) company.
Eventually Time acquiesced in Warner's insistence on a stock-for-stock deal, but talks broke down over corporate governance issues. Time wanted Ross' position as a co-CEO to be temporary and wanted Ross to retire in five years. Ross, however, refused to set a time for his retirement and viewed Time's proposal as indicating a lack of confidence in his leadership. Warner considered it vital that their executives and creative staff not perceive Warner as selling out to Time. Time's request of a guarantee that Time would dominate the CEO succession was objected to as inconsistent with the concept of a Time-Warner merger "of equals." Negotiations ended when the parties reached an impasse. Time's board refused to compromise on its position on corporate governance. Time, and particularly its outside directors, viewed the corporate governance provisions as critical for preserving the "Time Culture" through a pro-Time management at the top. See supra note 4.
Throughout the fall of 1988 Time pursued its plan of expansion into the entertainment field; Time held informal Discussions with several companies, including Paramount, Capital Cities/ABC approached Time to propose a merger. Talks terminated, however, when Capital Cities/ABC suggested that it was interested in purchasing Time or in controlling the resulting board. Time steadfastly maintained it was not placing itself up for sale.
Warner and Time resumed negotiations in January 1989. The catalyst for the resumption of talks was a private dinner between Steve Ross and Time outside director, Michael Dingman. Dingman was able to convince Ross that the transitional nature of the proposed co-CEO arrangement did not reflect a lack of confidence in Ross. Ross agreed that this course was best for the company and a meeting between Ross and Munro resulted. Ross agreed to retire in five years and let Nicholas succeed him. Negotiations resumed and many of the details of the original stock-for-stockexchange agreement remained intact. In addition, Time's senior management agreed to long-term contracts. Time insider directors Levin and Nicholas met with Warner's financial advisors to decide upon a stock exchange ratio. Time's board had recognized the potential need to pay a premium in the stock ratio in exchange for dictating the governing arrangement of the new Time-Warner. Levin and outside director Finkelstein were the primary proponents of paying a premium to protect the "Time Culture." The board discussed premium rates of 10%, 15% and 20%. Wasserstein also suggested paying a premium for Warner due to Warner's rapid growth rate. The market exchange ratio of Time stock for Warner stock was .38 in favor of Warner. Warner's financial advisors informed its board that any exchange rate over .400 was a fair deal and any exchange rate over .450 was "one hell of a deal." The parties ultimately agreed upon an exchange rate favoring Warner of .465. On that basis, Warner stockholders would have owned approximately 62% *n7 of the common stock of Time-Warner.
On March 3, 1989, Time's board, with all but one director in attendance, met and unanimously approved the stock-for-stock merger with Warner. Warner's board likewise approved the merger. The agreement called for Warner to be merged into a wholly-owned Time subsidiary with Warner becoming the surviving corporation. The common stock of Warner would then be converted into common stock of Time at the agreed upon ratio. Thereafter, the name of Time would be changed to Time-Warner, Inc.
The rules of the New York Stock Exchange required that Time's issuance of shares to effectuate the merger be approved by a vote of Time's stockholders. The Delaware General Corporation Law required approval of the merger by a majority of the Warner stockholders. Delaware law did not require any vote by Time stockholders. The Chancellor concluded that the agreement was the product of "an arms-length negotiation between two parties seeking individual advantage through mutual action."
The resulting company would have a 24member board, with 12 members representing each corporation. The company would have co-CEO's, at first Ross and Munro, then Ross and Nicholas, and finally, after Ross' retirement, by Nicholas alone. The board would create an editorial committee with a majority of members representing Time. A similar entertainment committee would be controlled by Warner board members. A two-thirds supermajority vote was required to alter CEO successions but an earlier proposal to have supermajority protection for the editorial committee was abandoned. Warner's board suggested raising the compensation levels for Time's senior management under the new corporation. Warner's management, as with most entertainment executives, received higher salaries than comparable executives in news journalism. Time's board, however, rejected Warner's proposal to equalize the salaries of the two management teams.
At its March 3, 1989 meeting, Time's board adopted several defensive tactics. Time entered an automatic share exchange agreement with Warner. Time would receive 17,292,747 shares of Warner's outstanding common stock (9.4%) and Warner would receive 7,080,016 shares of Time's outstanding common stock (11.1%). Either party could trigger the exchange. Time sought out and paid for "confidence" letters from various banks with which it did business. In these letters, the banks promised not to finance any third-party attempt to acquire Time. Time argues these agreements served only to preserve the confidential relationship between itself and the banks. The Chancellor found these agreements to be inconsequential and futile attempts to "dry up" money for a hostile takeover. Time also agreed to a "no-shop" clause, preventing Time from considering any other consolidation proposal, thus relinquishing its power to consider other proposals, regardless of their merits. Time did so at Warner's insistence. Warner did not want to be left "on the auction block" for an unfriendly suitor, if Time were to withdraw from the deal.
Time's board simultaneously established a special committee of outside directors, Finkelstein, Kearns, and Opel, to oversee the merger. The committee's assignment was to resolve any impediments that might arise in the course of working out the details of the merger and its consummation.
Time representatives lauded the lack of debt to the United States Senate and to the President of the United States. Public reaction to the announcement of the merger was positive. Time-Warner would be a media colossus with international scope. The board scheduled the stockholder vote for June 23; and a May 1 record date was set. On May 24, 1989, Time sent out extensive proxy statements to the stockholders regarding the approval vote on the merger. In the meantime, with the merger proceeding without impediment, the special committee had concluded, shortly after its creation, that it was not necessary either to retain independent consultants, legal or financial, or even to meet. Time's board was unanimously in favor of the proposed merger with Warner; and, by the end of May, the Time-Warner merger appeared to an accomplished fact.
On June 7, 1989, these wishful assumptions were shattered by Paramount's surprising announcement of its all-cash offer to purchase all outstanding shares of Time for $175 per share. The following day, June 8, the trading price of Time's stock rose from $126 to $170 per share. Paramount's offer was said to be "fully negotiable." *n8
Time found Paramount's "fully negotiable" offer to be in fact subject to at least three conditions. First, Time had to terminate its merger agreement and stock exchange agreement with Warner, and remove certain other of its defensive devices, including the redemption of Time's shareholder rights. Second, Paramount had to obtain the required cable franchise transfers from Time in a fashion acceptable to Paramount in its sole discretion. Finally, the offer depended upon a judicial determination that section 203 of the General Corporate Law of Delaware (The Delaware Anti-Takeover Statute) was inapplicable to any Time-Paramount merger. While Paramount's board had been privately advised that it could take months, perhaps over a year, to forge and consummate the deal, Paramount's board publicly proclaimed its ability to close the offer by July 5, 1989. Paramount executives later conceded that none of its directors believed that July 5th was a realistic date to close the transaction.
On June 8, 1989, Time formally responded to Paramount's offer. Time's chairman and CEO, J. Richard Munro, sent an aggressively worded letter to Parmount's CEO, Martin Davis. Munro's letter attacked Davis' personal integrity and called Paramount's offer "smoke and mirrors." Time's nonmanagement directors were not shown the letter before it was sent. However, at a board meeting that same day, all members endorsed management's response as well as the letter's content.
Over the following eight days, Time's board met three times to discuss Paramount's $175 offer. The board viewed Paramount's offer as inadequate and concluded that its proposed merger with Warner was the better course of action. Therefore, the board declined to open any negotiations with Paramount and held steady its course toward a merger with Warner.
In June, Time's board of directors met several times. During the course of their June meetings, Time's outside directors met frequently without management, officers or directors being present. At the request of the outside directors, corporate counsel was present during the board meetings and, from time to time, the management directors were asked to leave the board sessions. During the course of these meeting, Time's financial advisors informed the board that, on an auction basis, Time's per share value was materially higher than Warner's $175 per share offer. *n9 After this advice, the board concluded that Paramount's $175 offer was inadequate.
At these June meetings, certain Time directors expressed their concern that Time stockholders would not comprehend the long-term benefits of the Warner merger. Large quantities of Time shares were held by institutional investors. The board feared that even though there appeared to be wide support for the Warner transaction, Paramount's cash premium would be a tempting prospect to these investors. In mid-June, Time sought permission from the New York Stock Exchange to alter its rules and allow the Time-Warner merger to proceed without stockholder approval. Time did so at Warner's insistence. The New York Stock Exchange rejected Time's request on June 15; and on that day, the value of Time stock reached $182 per share.
The following day, June 16, Time's board met to take up Paramount's offer. The board's prevailing belief was that Paramount's bid posed a threat to Time's control of its own destiny and retention of the "Time Culture." Even after Time's financial advisors made another presentation of Paramount and its business attributes, Time's board maintained its position that a combination with Warner offered greater potential for Time. Warner provided Time a much desired production capability and an established international marketing chain. Time's advisors suggested various options, including defensive measures. The board considered and rejected the idea of purchasing Paramount in a "Pac Man" defense. *n10 The board considered other defenses, including a recapitalization, the acquisition of another company, and a material change in the present capitalization structure or dividend policy. The board determined to retain its same advisors even in light of the changed circumstances. The board rescinded its agreement to pay its advisors a bonus based on the consummation of the Time-Warner merger and agreed to pay a flat fee for any advice rendered. Finally, Time's board formally rejected Paramount's offer. *n11
At the same meeting, Time's board decided to recast its consolidation with Warner into an outright cash and securities acquisition of Warner by Time; and Time so informed Warner. Time accordingly restructured its proposal to acquire Warner as follows: Time would make an immediate all-cash offer for 51% of Warner's outstanding stock at $70 per share. The remaining 49% would be purchased at some later date for a mixture of cash and securities worth $70 per share. To provide the funds required for its outright acquisition of Warner, Time would assume 7-10 billion dollars worth of debt, thus eliminating one of the principal transaction-related benefits of the original merger agreement. Nine billion dollars of the total purchase price would be allocated to the purchase of Warner's goodwill.
Warner agreed but insisted on certain terms. Warner sought a control premium and guarantees that the governance provisions found in the original merger agreement would remain intact. Warner further sought agreements that Time would not employ its poison pill against Warner and that, unless enjoined, Time would be legally bound to complete the transaction. Time's board agreed to these last measures only at the insistence of Warner. For its part, Time was assured of its ability to extend its efforts into production areas and international markets, all the while maintaining the Time identity and culture. The Chancellor found the initial Time-Warner transaction to have been negotiated at arms length and the restructured Time-Warner transaction to have resulted from Paramount's offer and its expected effect on a Time shareholder vote.

On June 23, 1989, Paramount raised its all-cash offer to buy Time's outstanding stock to $200 per share. Paramount still professed that all aspects of the offer were negotiable. Time's board met on June 26, 1989 and formally rejected Paramount's $200 per share second offer. The board reiterated its belief that, despite the $25 increase, the offer was still inadequate. The Time board maintained that the Warner transaction offered a greater long-term value for the stockholders and, unlike Paramount's offer, did not pose a threat to Time's survival and its "culture." Paramount then filed this action in the Court of

II
The Shareholder Plaintiffs first assert a Revlon claim. They contend that the March 4 Time- Warner agreement effectively put Time up for sale, triggering Revlon duties, requiring Time's board to enhance short-term shareholder value and to treat all other interested acquirors on an equal basis. The Shareholder Plaintiffs base this argument on two facts: (i) the ultimate Time- Warner exchange ratio of .465 favoring Warner, resulting in Warner shareholders' receipt of 62% of the combined company; and (ii) the subjective intent of Time's directors as evidenced in their statements that the market might perceive the Time-Warner merger as putting Time up "for sale" and their adoption of various defensive measures.
The Shareholder Plaintiffs further contend that Time's directors, in structuring the original merger transaction to be "takeover-proof," triggered Revlon duties by foreclosing their shareholders from any prospect of obtaining a control premium. In short, plaintiffs argue that Time's board's decision to merge with Warner imposed a fiduciary duty to maximize immediate share value and not erect unreasonable barriers to further bids. Therefore, they argue, the Chancellor erred in finding: that Paramount's bid for Time did not place Time "for sale"; that Time's transaction with Warner did not result in any transfer of control; and that the combined Time-Warner was not so large as to preclude the possibility of the stockholders of Time-Warner receiving a future control premium.
***
The Court of Chancery posed the pivotal question presented by this case to be: Under
what circumstances must a board of directors abandon an in-place plan of corporate development in order to provide its shareholders with the option to elect and realize an immediate control premium? As applied to this case, the question becomes: Did Time's Board, having developed a strategic plan of global expansion to be launched through a business combination with Warner, come under a fiduciary duty to jettison its plan and put the corporation's future in the hands of its shareholders?
While we affirm the result reached by the Chancellor, we think it unwise to place undue
emphasis upon long-term versus short-term corporate strategy. Two key predicates underpin our analysis. First, Delaware law imposes on a board of directors the duty to manage the business and affairs of the corporation. 8 Del.C.§141(a). This broad mandate includes a conferred authority to set a corporate course of action, including time frame, designed to enhance corporate profitability. *n12 Thus, the question of "long-term" versus "short-term" values is largely irrelevant because directors, generally, are obliged to charter a course for a corporation which is in its best interest without regard to a fixed investment horizon. Second, absent a limited set of circumstances as defined under Revlon, a board of directors, while always required to act in an informed manner, is not under any per se duty to maximize shareholder value in the short term, even in the context of a takeover. In our view, the pivotal question presented by this case is: "Did Time, by entering into the proposed merger with Warner, put itself up for sale?" A resolution of that issue through application of Revlon has a significant hearing upon the resolution of the derivative Unocal issue.
A.
We first take up plaintiffs' principal Revlon argument, summarized above. In rejecting this argument, the Chancellor found the original Time-Warner merger agreement not to constitute a "change of control" and concluded that the transaction did not trigger Revlon duties. The Chancellor's Conclusion is premised on a finding that "before the merger agreement was signed, control of the corporation existed in a fluid aggregation of unaffiliated shareholders representing a voting majority--in other words, in the market." The Chancellor's findings of fact are supported by the record and his Conclusion is correct as a matter of law. However, we remise our rejection of plaintiffs' Revlon claim on different grounds, namely, the absence of any substantial evidence to conclude that Time's board, in negotiating with Warner, made the dissolution or breakup of the corporate entity inevitable, as was the case in Revlon.
Under Delaware law there are, generally speaking and without excluding other possibilities, two circumstances which may implicate Revlon duties. The first, and clearer one, is when a corporation initiates an active bidding process seeking to sell itself or to effect a business reorganization involving a clear break-up of the company. See, e.g., Mills Acquisition Co. v. Macmillan, Inc, Del. Supr.,559 A.2d 1261(1988). However, Revlon duties may also be triggered where, in response to a bidder's offer, a target abandons its long-term strategy and seeks an alternative transaction also involving the breakup of the company. *n13 Thus, in Revlon, when the board responded to Pantry Pride's offer by contemplating a "bust-up" sale of assets in a leveraged acquisition, we imposed upon the board a duty to maximize immediate shareholder value and an obligation to auction the company fairly. If, however, the board's reaction to a hostile tender offer is found to constitute only a defensive response and not an abandonment of the corporation's continued existence, Revlon duties are not triggered, though Unocal duties attach.
The plaintiffs insist that even though the original Time-Warner agreement may not have worked "an objective change of control," the transaction made a "sale" of Time inevitable. Plaintiffs rely on the subjective intent of Time's board of directors and principally upon certain board members' expressions of concern that the Warner transaction might be viewed as effectively putting Time up for sale. Plaintiffs argue that the use of a lock-up agreement, a no shop clause, and so-called "dry-up" agreements prevented shareholders from obtaining a control premium in the immediate future and thus violated Revlon.
We agree with the Chancellor that such evidence is entirely insufficient to invoke Revlon duties; and we decline to extend Revlon's application to corporate transactions simply because they might be construed as putting a corporation either "in play" or "up for sale." See Citron v. Fairchild Camera, Del. Supr., 569 A.2d 53, (1989); Macmillan, 559 A.2d at 1285n.35. The adoption of structural safety devices alone does not trigger Revlon. *n15 Rather, as the Chancellor stated, such devices are properly subject to a Unocal analysis.
Finally, we do not find in Time's recasting of its merger agreement with Warner from a share exchange to a share purchase a basis to conclude that Time had either abandoned its strategic plan or made a sale of Time inevitable. *n16 The Chancellor found that although the merged Time-Warner company would be large (with a value approaching approximately $30 billion), recent takeover cases have proven that acquisition of the combined company might nonetheless be possible. In Re: Time Incorporated Shareholder Litigation, Del. Ch., C.A. No. 10670, Allen, C. (July 14, 1989), slip op. at 56. The legal consequence is that Unocal alone applies to determine whether the business judgment rule attaches to the revised agreement. Plaintiffs' analogy to Macmillan thus collapses and plaintiffs' reliance on Macmillan is misplaced.

B.
We turn now to plaintiffs' Unocal claim. We begin by noting, as did the Chancellor, that our decision does not require us to pass on the wisdom of the board's decision to enter into the original Time-Warner agreement. That is not a court's task. Our task is simply to review the record to determine whether there is sufficient evidence to support the Chancellor's Conclusion that the initial Time-Warner agreement was the product of a proper exercise of business judgment. Macmillan, 559 A.2d at 1288.
We have purposely detailed the evidence of the Time board's deliberative approach, beginning in 1983-84, to expand itself. Time's decision in 1988 to combine with Warner was made only after what could be fairly characterized as an exhaustive appraisal of Time's future as a corporation. After concluding in 1983-84 that the corporation must expand to survive, and beyond journalism into entertainment, the board combed the field of available entertainment companies. By 1987 Time had focused upon Warner; by late July 1988 Time's board was convinced that Warner would provide the best "fit" for Time to achieve its strategic objectives. The record attests to the zealousness of Time's executives, fully supported by their directors, in seeing to the preservation of Time's "culture," i.e., its perceived editorial integrity in journalism. We find ample evidence in the record to support the Chancellor's Conclusion that the Time board's decision to expand the business of the company through its March 3 merger with Warner was entitled to the protection of the business judgment rule.
The Chancellor reached a different Conclusion in addressing the Time-Warner transaction as revised three months later. He found that the revised agreement was defense-motivated and designed to avoid the potentially disruptive effect that Paramount's offer would have had on consummation of the proposed merger were it put to a shareholder vote. Thus, the court declined to apply the traditional business judgment rule to the revised transaction and instead analyzed the Time board's June 16decision under Unocal. The court ruled that Unocal applied to all director actions taken, following receipt of Paramount's hostile tender offer, that were reasonably determined to be defensive. Clearly that was a correct ruling and no party disputes that ruling.
In Unocal, we held that before the business judgment rule is applied to a board's adoption of a defensive measure, the burden will lie with the board to prove (a) reasonable grounds for believing that a danger to corporate policy and effectiveness existed; and (b) that the defensive measures adopted was reasonable in relation to the threat posed. Unocal, 493 A.2d 946. Directors satisfy the first part of the Unocal test by demonstrating good faith and reasonable investigation. We have repeatedly stated that the refusal to entertain an offer may comport with a valid exercise of a board's business judgment. See, e.g., Macmillan, 559 A.2d at 1285 n.35; Van Gorkom, 488 A.2d at 881; Pogostin v. Rice, Del. Supr., 480 A.2d 619, 627 (1984).
Unocal involved a two-tier, highly coercive tender offer. In such a case, the threat is obvious: shareholders may be compelled to tender to avoid being treated adversely in the second stage of the transaction. Accord Ivanhoe, 535 at 1344. In subsequent cases the Court of Chancery has suggested that an all-cash, all-shares offer, falling within a range of values that a shareholder might reasonably prefer, cannot constitute a legally recognized "threat" to shareholder interests sufficient to withstand a Unocal analysis. AC Acquisitions Corp. v. Anderson, Clayton Co., Del. Ch., 519 A.2d 103 (1986); See Grand Metropolitan, PLC v. Pillsbury Co., Del. Ch., 558 A.2d 1049 (1988); City Capital Associates v. Interco, Inc., Del. Ch., 551 A.2d 787 (1988). In those cases, the Court of Chancery determined that whatever threat existed related only to the shareholders and only to price and not to the corporation.  
From those decisions by our Court of Chancery, Paramount and the individual plaintiffs extrapolate a rule of law that an all-cash, all shares offer with values reasonably in the range of acceptable price cannot pose any objective threat to a corporation or its shareholders. Thus, Paramount would have us hold that only if the value of Paramount's offer were determined to be clearly inferior to the value created by management's plan to merge with Warner could the offer be viewed--objectively--as a threat.
Implicit in the plaintiffs' argument is the view that a hostile tender offer can pose only two types of threats: the threat of coercion that results from a two-tier offer promising unequal treatment for nontendering shareholders; and the threat of inadequate value from an all-shares, all-cash offer at a price below what a target board in good faith deems to be the present value of its shares. See, e.g., Interco, 551 A.2d at 797; see also BNS, Inc. v. Koppers, D. Del., 683F. Supp. 458 (1988). Since Paramount's offer was all-cash, the only conceivable "threat," plaintiffs argue, was inadequate value. *n17 We disapprove of such a narrow and rigid construction of Unocal, for the reasons which follow.
Plaintiffs' position represents a fundamental misconception of our standard of review under Unocal principally because it would involve the court in substituting its judgment as to what is a "better" deal for that of a corporation's board of directors. To the extent that the Court of Chancery has recently done so in certain of its opinions, we hereby reject such approach as not in keeping with a proper Unocal analysis. See, e.g., Interco, 551 A.2d 787, and its progeny; but see TW Services, Inc. v. SWT Acquisition Corp., Del. Ch., C.A. No. 10427, Allen, C. (March 2, 1989).
The usefulness of Unocal as an analytical tool is precisely its flexibility in the face of a variety of fact scenarios. Unocal is not intended as an abstract standard; neither is it a structured and mechanistic procedure of appraisal. Thus, we have said that directors may consider, when evaluating the threat posed by a takeover bid, the "inadequacy of the price offered, nature and timing of the offer, questions of illegality, the impact on 'constituencies' other than shareholders, the risk of nonconsummation and the quality of securities being offered in the exchange." 493 A.2d at 955. The open-ended analysis mandated by Unocal is not intended to lead to a simple mathematical exercise: that is, of comparing the discounted value of Time- Warner's expected trading price at some future date with Paramount's offer and determining which is the higher. Indeed, in our view, precepts underlying the business judgment rule militate against a court's engaging in the process of attempting to appraise and evaluate the relative merits of a long-term versus a short-term investment goal for shareholders. To engage in such an exercise is a distortion of the Unocal process and, in particular, the application of the second part of Unocal's test, discussed below.
In this case, the Time board reasonably determined that inadequate value was not the only legally cognizable threat that Paramount's all-cash, all-shares offer could present. Time's board concluded that Paramount's eleventh hour offer posed other threats. One concern was that Time shareholders might elect to tender into Paramount's cash offer in ignorance or a mistaken belief of the strategic benefit which a business combination with Warner might produce. Moreover, Time viewed the conditions attached to Paramount's offer as introducing a degree of uncertainty that skewed a comparative analysis. Further, the timing of Paramount's offer to follow issuance of Time's proxy notice was viewed as arguably designed to upset, if not confuse, the Time stockholders' vote. Given this record evidence, we cannot conclude that the Time board's decision of June 6 that Paramount's offer posed a threat to corporate policy and effectiveness was lacking in good faith or dominated by motives of either entrenchment or self-interest.
Paramount also contends that the Time board had not duly investigated Paramount's offer. Therefore, Paramount argues, Time was unable to make an informed decision that the offer posed a threat to Time's corporate policy. Although the Chancellor did not address this issue directly, his findings of fact do detail Time's exploration of the available entertainment companies, including Paramount, before determining that Warner provided the best strategic "fit." In addition, the court found that Time's board rejected Paramount's offer because Paramount did not serve Time's objectives or meet Time's needs. Thus, the record does, in our judgment, demonstrate that Time's board was adequately informed of the potential benefits of a transaction with Paramount. We agree with the Chancellor that the Time board's lengthy pre-June investigation of potential merger candidates, including Paramount, mooted any obligation on Time's part to halt its merger process with Warner to reconsider Paramount. Time's board was under no obligation to negotiate with Paramount. Unocal, 493 A.2d at 954-55; see also Macmillan, 559 A.2d at 1285 n.35. Time's failure to negotiate cannot be fairly found to have been uninformed. The evidence supporting this finding is materially enhanced by the fact that twelve of Time's sixteen board members were outside independent directors. Unocal, 493 A.2d at 955; Moran v. Household Intern., Inc., Del. Supr., 500 A.2d 1346, 1356 (1985).
We turn to the second part of the Unocal analysis. The obvious requisite to determining the reasonableness of a defensive action is a clear identification of the nature of the threat. As the Chancellor correctly noted, this "requires an evaluation of the importance of the corporate objective threatened; alternative methods of protecting that objective; impacts of the 'defensive' action, and other relevant factors." In Re: Time Incorporated Shareholder Litigation, Del. Ch., C.A. No. 10670, Allen, C. (July 14, 1989). It is not until both parts of the Unocal inquiry have been satisfied that the business judgment rule attaches to defensive actions of a board of directors. Unocal, 493 A.2d at 954. *n18 As applied to the facts of this case, the question is whether the record evidence supports the Court of Chancery's Conclusion that the restructuring of the Time-Warner transaction, including the adoption of several preclusive defensive measures, was a reasonable response in relation to a perceived threat.
Paramount argues that, assuming its tender offer posed a threat, Time's response was unreasonable in precluding Time's shareholders from accepting the tender offer or receiving a control premium in the immediately foreseeable future. Once again, the contention stems, we believe, from a fundamental misunderstanding of where the power of corporate governance lies. Delaware law confers the management of the corporate enterprise to the stockholders' duly elected board representatives. 8 Del.C.§141(a). The fiduciary duty to manage a corporate enterprise includes the selection of a time frame for achievement of corporate goals. That duty may not be delegated to the stockholders. Van Gorkom, 488 A.2d at 873. Directors are not obliged to abandon a deliberately conceived corporate plan for a short-term shareholder profit unless there is clearly no basis to sustain the corporate strategy. See, e.g., Revlon, 506 A.2d 173.
Although the Chancellor blurred somewhat the discrete analyses required under Unocal, he did conclude that Time's board reasonably perceived Paramount's offer to be a significant threat to the planned Time-Warner merger and that Time's response was not "overly broad." We have found that even in light of a valid threat, management actions that are coercive in nature or force upon shareholders a management-sponsored alternative to a hostile offer may be struck down as unreasonable and nonproportionate responses. Macmillan, 559 A.2d 1261; AC Acquisitions Corp., 519 A.2d 103.
Here, on the record facts, the Chancellor found that Time's responsive action to Paramount's tender offer was not aimed at "cramming down" on its shareholders a management-sponsored alternative, but rather had as its goal the carrying forward of a pre-existing transaction in an altered form. *n19 Thus, the response was reasonably related to the threat. The Chancellor noted that the revised agreement and its accompanying safety devices did not preclude Paramount from making an offer for the combined Time-Warner company or from changing the conditions of its offer so as not to make the offer dependent upon the nullification of the Time-Warner agreement. Thus, the response was proportionate. We affirm the Chancellor's rulings as clearly supported by the record. Finally, we note that although Time was required, as a result of Paramount's hostile offer, to incur a heavy debt to finance its acquisition of Warner, that fact alone does not render the board's decision unreasonable so long as the directors could reasonably perceive the debt load not to be so injurious to the corporation as to jeopardize its well being.
C.
Conclusion
Applying the test for grant or denial of preliminary injunctive relief, we find plaintiffs failed to establish a reasonable likelihood of ultimate success on the merits. Therefore, we affirm.

 

QUESTIONS

  1. Is the court applying a Unocal standard here? Why doesn’t the court apply a Revlon standard here?
  2. Is there any evidence of management entrenchment purposes?
  3. Is there any evidence that management dominated the board deliberations?

三、比较论述题
根据国外公司治理中有关董事义务的规定,谈谈如何完善我国相关制度?

参考答案:
董事的义务是指董事作为公司的受任人和受信托人对公司所负的义务。尽管董事是由公司股东会所选任,但股东会属于公司内部的权力机构,并不能代表公司这一整 体。所以说,董事只对公司而非对个别股东或者某一类股东负有义务。基于董事与公司的“委任关系”和“信托关系”,董事具有以下两方面义务:
(一)注意义务
在英美法系又被称为“勤勉、注意和技能义务”、“注意和技能义务”;在大陆法系被称为“善良管理人的注意义务”、“善管义务”。但是我国《公司法》未对 董事的注意义务加以规定,造成立法上的漏洞。董事的注意义务产生的根源是董事与公司间的委任关系,其含义是董事须以一个合理的谨慎的人在相似的情形下所应 表现的谨慎、勤勉和技能履行其职责,如果董事履行其职责时,没有尽到合理的谨慎,他应对公司承担赔偿责任。董事作为对公司发展有重大影响的公司管理机关, 享有法律、章程及股东会所授予的权力处理全公司所有的业务,左右着公司的命运,其地位十分重要突出。所以,董事应积极地参与公司事务的管理,对公司的事务 尽应有的注意,善待公司利益。否则依据法律和章程就应对公司承担相应的法律责任。
我国公司立法没有设立董事的注意义务,因而,在公司制改组过程中,由于体制不健全和法律不完善的原因,许多公司仅仅只是原国有企业的翻牌公司。董事会成员 多数为原企业的领导干部,不具备应有的业务素质,怠于公司事务的管理和注意义务的履行,使公司(企业)管理混乱的局面没有得到根本的改善,而法律对此却无 能为力。为了改变这一局面,有必要将董事注意义务法定化、明确化。
从可操作层面来看,有三种途径可以弥补这一立法不足。其一,在修订《民法典》时,明确董事与公司存在委任关系和信托关系,根据委任和信托原理,董事必须承 担注意义务,并规定注意的判断标准(规则)及责任形式;其二,修改《公司法》,概括性地确立董事的注意义务,并明确判断的标准(规则);其三,制定法规要 求各公司在其章程中明确董事对公司所应负的具体注意义务及判断的标准(规则)。由于公司章程具有“准法律”的作用,这一途径也可视为从立法上完善董事义务 的规定。
由于董事的注意义务是比较抽象的义务,所以对其评判要兼顾主客观两方面。 从主观上看,董事应依诚实信用原则竭力处理公司事务;从客观上看,董事应尽到与其具有相同的知识、经验的人所应履行的注意程度。对董事履行注意义务时主观 状态的判断,需要赋予法官较大的自由裁量权。而我国法官素质普遍不高,过大自由裁量权会引起司法不公。鉴于此。笔者认为我国对董事履行注意义务的判断,以 普通谨慎、勤勉之人在同一类公司、同一类职务、同一类情形下所应具有的注意程度、经验、技能和知识水平为判断标准。
(二)忠实义务
又称信任义务、信托义务,指董事必须竭尽忠诚地为公司工作并诚实地履行职责,其理论基础是董事与公司间的信托关系。在这一关系中董事处于受信托人的地位, 公司财产成为信托财产。当公司利益与董事个人利益发生冲突时,基于信托关系的存在,董事必须忠实于公司,优先公司利益。 尽管《公司法》对董事忠实义务作 了较为详尽的规定,但是许多内容与现代公司立法趋势相悖,需要进一步完善和发展。
1、竞业禁止义务
董事、经理不得自营或者为他人经营与其所任职公司同类的营业或活动的,所得收入应归公司所有。从法律上明确禁止董事为自己或第三人为属于公司经营范围内的 业务或为有损公司利益的行为。这是为了防止董事可能利用自己或第三人谋取利益而损害公司利益。但我国《公司法》对此仍需从以下几个方面加以完善:
第一、对董事的竞业行为予以绝对禁止不利于公司对商事机会和商业利益的获取。因为并非任何情况下的董事竞业行为都有损公司利益,只要符合法定的条件和程 序,法律应该准许董事的竞业行为。这也是各国公司立法的共同点。如德国《股份公司法》第88条第1款规定:董事经监事会许可,可以从事竞业。日本《商法》 第264条一项规定:“董事为自己或他人进行属于公司营业范围内的交易时须向董事会公开出示该交易的重要事实,并取得同意。”所以,我国公司立法也应有条 件地准许董事竞业行为,并设定竞业许可的条件和批准程序,以尽可能地保障公司最佳利益。
第二、我国公司法规定了公司对董事竞业行为的所得收入享有归入权(也称介入权,即公司不仅可以将董事为其个人利益而进行的竞业收入收归公司所有,还可以将 董事为他人利益而获得竞业报酬归于公司。)但我国公司法没有规定归入权的消灭时效和计算的起始时间,在实践中,适用民事诉讼时效(二年)。纵观各国公司立 法,笔者认为消灭时效宜确定为一年,计算的起始时间应从竞业所得产生之日起计算。公司在法定期限内不行使归入权,应视为公司对竞业行为的认可。
第三、应将董事非法获取和利用公司的商事机会确定为禁止的竞业行为。这是“公司机会高于一切”原则的具体要求。如果某一商事机会被认为是公司商事机会,作 为知悉公司具体事务和信息的董事,不得违反忠实义务利用职务便利,将公司商事机会转予自己或第三人,从中获利。至于公司机会和非公司机会的区分,可以借鉴 美国公司法中的经营范围标准和公平标准。
第四、应规定对违反竞业禁止义务的董事的处理规则。在外国公司法中,一般都赋予公司股东派生诉讼权,当董事的竞业行为损害了公司和股东的利益时,公司股东 有权以公司名义向法院提起派生诉讼。当然,这种派生诉讼并不仅仅针对董事违反竞业义务,当董事违反注意义务和其他忠实义务时,股东也可以借此维护自己和公 司的权益。
2、不得进行抵触利益交易义务
我国《公司法》第61条第2款规定:“董事、经理除公司章程规定或者股东会同意外,不得同本公司订立合同或者进行交易。”因而,董事在与其任职公司订立合 同或进行交易时,必须符合法定的条件和程序。其立法意图是防止董事自己代表或双方代表行为对公司利益损害的可能。然而,仍需作以下完善:
第一、各国公司法都认为抵触利益交易不仅包括董事与公司间的直接交易,还包括董事、董事的关联人作为一方当事人与公司、公司的关联公司之间进行的交易。我 国公司法宜作扩大解释,以防止董事利用这一漏洞进行非法的抵触利益交易。
第二、我国《公司法》将抵触利益交易的批准权全部授予股东会。这一点应予以修订。作为公司内部的权力机构,股东会的主要职责在于决策公司重大事务,而不涉 及公司的具体事务。而且,股东会需在召开前15日内通知全体股东,市场的瞬息万变会使公司失去交易机会。所以,可以将批准权部分授予董事会,同时作为一方 当事人的董事可以回避;对于董事与公司间的重大财产性交易,仍可由股东会批准。
第三、明确董事在进行抵触利益交易时,应负披露义务,即董事应及时向股东会或董事会陈述自己利益的性质、程度,说明自己行为的内容,以获取无利害关系股东或董事的同意和认可。

any other means to him personally, to his place of business or mailing address or, if he does not have a place of business or mailing address, to his habitual residence
Part III. Sale of goods
CHAPTER I. GENERAL PROVISIONS
Article 25
A breach of contract committed by one of the parties is fundamental if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result.
Article 26
A declaration of avoidance of the contract is effective only if made by notice to the other party.
Article 27
Unless otherwise expressly provided in this Part of the Convention, if any notice, request or other communication is given or made by a party in accordance with this Part and by means appropriate in the circumstances, a delay or error in the transmission of the communication or its failure to arrive does not deprive that party of the right to rely on the communication.
Article 28
If, in accordance with the provisions of this Convention, one party is entitled to require performance of any obligation by the other party, a court is not bound to enter a judgement for specific performance unless the court would do so under its own law in respect of similar contracts of sale not governed by this Convention.
Article 29
(1) A contract may be modified or terminated by the mere agreement of the parties.
(2) A contract in writing which contains a provision requiring any modification or termination by agreement to be in writing may not be otherwise modified or terminated by agreement. However, a party may be precluded by his conduct from asserting such a provision to the extent that the other party has relied on that conduct.
CHAPTER II. OBLIGATIONS OF THE SELLER
Article 30
The seller must deliver the goods, hand over any documents relating to them and transfer the property in the goods, as required by the contract and this Convention.
Section I. Delivery of the goods and handing over of documents
Article 31
If the seller is not bound to deliver the goods at any other particular place, his obligation to deliver consists:
(a) if the contract of sale involves carriage of the goods--in handing the goods over to the first carrier for transmission to the buyer;
(b) if, in cases not within the preceding subparagraph, the contract relates to specific goods, or unidentified goods to be drawn from a specific stock or to be manufactured or produced, and at the time of the conclusion of the contract the parties knew that the goods were at, or were to be manufactured or produced at, a particular place--in placing the goods at the buyer's disposal at that place;
(c) in other cases--in placing the goods at the buyer's disposal at the place where the seller had his place of business at the time of the conclusion of the contract.
Article 32
(1) If the seller, in accordance with the contract or this Convention, hands the goods over to a carrier and if the goods are not dearly identified to the contract by markings on the goods, by shipping documents or otherwise, the seller must give the buyer notice of the consignment specifying the goods.
(2) If the seller is bound to arrange for carriage of the goods, he must make such contracts as are necessary for carriage to the place fixed by means of transportation appropriate in the circumstances and according to the usual terms for such transportation.
(3) If the seller is not bound to effect insurance in respect of the carriage of the goods, he must, at the buyer's request, provide him with all available information necessary to enable him to effect such insurance.
Article 33
The seller must deliver the goods:
(a) if a date is fixed by or determinable from the contract, on that date;
(b) if a period of time is fixed by or determinable from the contract, at any time within that period unless circumstances indicate that the buyer is to choose a date; or
(c) in any other case, within a reasonable time after the conclusion of the contract.
Article 34
If the seller is bound to hand over documents relating to the goods, he must hand them over at the time and place and in the form required by the contract. If the seller has handed over documents before that time, he may, up to that time, cure any lack of conformity in the documents, if the exercise of this right does not cause the buyer unreasonable inconvenience or unreasonable expense. However, the buyer retains any right to claim damages as provided for in this Convention.
Section II. Conformity of the goods and third party claims
Article 35
(1) The seller must deliver goods which are of the quantity, quality and description required by the contract and which are contained or packaged in the manner required by the contract.
(2) Except where the parties have agreed otherwise, the goods do not conform with the contract unless they:
(a) are fit for the purposes for which goods of the same description would ordinarily be used;
(b) are fit for any particular purpose expressly or impliedly made known to the seller at the time of the conclusion of the contract, except where the circumstances show that the buyer did not rely, or that it was unreasonable for him to rely, on the seller's skill and judgement;
(c) possess the qualities of goods which the seller has held out to the buyer as a sample or model;
(d) are contained or packaged in the manner usual for such goods or, where there is no such manner, in a manner adequate to preserve and protect the goods.
(3) The seller is not liable under subparagraphs (a) to (d) of the preceding paragraph for any lack of conformity of the goods if at the time of the conclusion of the contract the buyer knew or could not have been unaware of such lack of conformity.
Article 36
(1) The seller is liable in accordance with the contract and this Convention for any lack of conformity which exists at the time when the risk passes to the buyer, even though the lack of conformity becomes apparent only after that time.
(2) The seller is also liable for any lack of conformity which occurs after the time indicated in the preceding paragraph and which is due to a breach of any of his obligations, including a breach of any guarantee that for a period of time the goods will remain fit for their ordinary purpose or for some particular purpose or will retain specified qualities or characteristics.
Article 37
If the seller has delivered goods before the date for delivery, he may, up to that date, deliver any missing part or make up any deficiency in the quantity of the goods delivered, or deliver goods in replacement of any non-conforming goods delivered or remedy any lack of conformity in the goods delivered, provided that the exercise of this right does not cause the buyer unreasonable inconvenience or unreasonable expense. However, the buyer retains any right to claim damages as provided for in this Convention.
Article 38
(1) The buyer must examine the goods, or cause them to be examined, within as short a period as is practicable in the circumstances.
(2) If the contract involves carriage of the goods, examination may be deferred until after the goods have arrived at their destination.
(3) If the goods are redirected in transit or redispatched by the buyer without a reasonable opportunity for examination by him and at the time of the conclusion of the contract the seller knew or ought to have known of the possibility of such redirection or redispatch, examination may be deferred until after the goods have arrived at the new destination.
Article 39
(1) The buyer loses the right to rely on a lack of conformity of the goods if he does not give notice to the seller specifying the nature of the lack of conformity within a reasonable time after he has discovered it or ought to have discovered it.
(2) In any event, the buyer loses the right to rely on a lack of conformity of the goods if he does not give the seller notice thereof at the latest within a period of two years from the date on which the goods were actually handed over to the buyer, unless this time-limit is inconsistent with a contractual period of guarantee.
Article 40
The seller is not entitled to rely on the provisions of articles 38 and 39 if the lack of conformity relates to facts of which he knew or could not have been unaware and which he did not disclose to the buyer.
Article 41
The seller must deliver goods which are free from any right or claim of a third party, unless the buyer agreed to take the goods subject to that right or claim. However, if such right or claim is based on industrial property or other intellectual property, the seller's obligation is governed by article 42.
Article 42
(1) The seller must deliver goods which are free from any right or claim of a third party based on industrial property or other intellectual property, of which at the time of the conclusion of the contract the seller knew or could not have been unaware, provided that the right or claim is based on industrial property or other intellectual property:
(a) under the law of the State where the goods will be resold or otherwise used, if it was contemplated by the parties at the time of the conclusion of the contract that the goods would be resold or otherwise used in that State; or
(b) in any other case, under the law of the State where the buyer has his place of business.
(2) The obligation of the seller under the preceding paragraph does not extend to cases where:
(a) at the time of the conclusion of the contract the buyer knew or could not have been unaware of the right or claim; or
(b) the right or claim results from the seller's compliance with technical drawings, designs, formulae or other such specifications furnished by the buyer.
Article 43
(1) The buyer loses the right to rely on the provisions of article 41 or article 42 if he does not give notice to the seller specifying the nature of the right or claim of the third party within a reasonable time after he has become aware or ought to have become aware of the right or claim.
(2) The seller is not entitled to rely on the provisions of the preceding paragraph if he knew of the right or claim of the third party and the nature of it.
Article 44
Notwithstanding the provisions of paragraph (1) of article 39 and paragraph (1) of article 43, the buyer may reduce the price in accordance with article 50 or claim damages, except for loss of profit, if he has a reasonable excuse for his failure to give the required notice.
Section III. Remedies for breach of contract by the seller
Article 45
(1) If the seller fails to perform any of his obligations under the contract or this Convention, the buyer may:
(a) exercise the rights provided in articles 46 to 52;
(b) claim damages as provided in articles 74 to 77.
(2) The buyer is not deprived of any right he may have to claim damages by exercising his right to other remedies.
(3) No period of grace may be granted to the seller by a court or arbitral tribunal when the buyer resorts to a remedy for breach of contract.
Article 46
(1) The buyer may require performance by the seller of his obligations unless the buyer has resorted to a remedy which is inconsistent with this requirement.
(2) If the goods do not conform with the contract, the buyer may require delivery of substitute goods only if the lack of conformity constitutes a fundamental breach of contract and a request for substitute goods is made either in conjunction with notice given under article 39 or within a reasonable time thereafter.
(3) If the goods do not conform with the contract, the buyer may require the seller to remedy the lack of conformity by repair, unless this is unreasonable having regard to all the circumstances. A request for repair must be made either in conjunction with notice given under article 39 or within a reasonable time thereafter.
Article 47
(1) The buyer may fix an additional period of time of reasonable length for performance by the seller of his obligations.
(2) Unless the buyer has received notice from the seller that he will not perform within the period so fixed, the buyer may not, during that period, resort to any remedy for breach of contract. However, the buyer is not deprived thereby of any right he may have to claim damages for delay in performance.
Article 48
(1) Subject to article 49, the seller may, even after the date for delivery, remedy at his own expense any failure to perform his obligations, if he can do so without unreasonable delay and without causing the buyer unreasonable inconvenience or uncertainty of reimbursement by the seller of expenses advanced by the buyer. However, the buyer retains any right to claim damages as provided for in this Convention.

(2) If the seller requests the buyer to make known whether he will accept performance and the buyer does not comply with the request within a reasonable time, the seller may perform within the time indicated in his request. The buyer may not, during that period of time, resort to any remedy which is inconsistent with performance by the seller.

CHAPTER V. PROVISIONS COMMON TO THE OBLIGATIONS
OF THE SELLER AND OF THE BUYER
Section I. Anticipatory breach and instalment contracts
Article 71
(1) A party may suspend the performance of his obligations if, after the conclusion of the contract, it becomes apparent that the other party will not perform a substantial part of his obligations as a result of:
(a) a serious deficiency in his ability of perform or in his creditworthiness; or
(b) his conduct in preparing to perform or in performing the contract.
(2) If the seller has already dispatched the goods before the grounds described in the preceding paragraph become evident, he may prevent the handing over of the goods to the buyer even though the buyer holds a document which entitles him to obtain them. The present paragraph relates only to the rights in the goods as between the buyer and the seller.
(3) A party suspending performance, whether before or after dispatch of the goods, must immediately give notice of the suspension to the other party and must continue with performance if the other party provides adequate assurance of his performance.
Article 72
(1) If prior to the date for performance of the contract it is clear that one of the parties will commit a fundamental breach of contract, the other party may declare the contract avoided.
(2) If time allows, the party intending to declare the contract avoided must give reasonable notice to the other party in order to permit him to provide adequate assurance of his performance.
(3) The requirements of the preceding paragraph do not apply if the other party has declared that he will not perform his obligations.
Article 73
(1) In the case of a contract for delivery of goods by instalments, if the failure of one party to perform any of his obligations in respect of any instalment constitutes a fundamental breach of contract with respect to that instalment, the other party may declare the contract avoided with respect to that instalment.
(2) If one party's failure to perform any of his obligations in respect of any instalment gives the other party good grounds to conclude that a fundamental breach of contract will occur with respect to future installments, he may declare the contract avoided for the future, provided that he does so within a reasonable time.
(3) A buyer who declares the contract avoided in respect of any delivery may, at the same time, declare it avoided in respect of deliveries already made or of future deliveries if, by reason of their interdependence, those deliveries could not be used for the purpose contemplated by the parties at the time of the conclusion of the contract.
Section II. Damages
Article 74
Damages for breach of contract by one party consist of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach. Such damages may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract, in the light of the facts and matters of which he then knew or ought to have known, as a possible consequence of the breach of contract.
Article 75
If the contract is avoided and if, in a reasonable manner and within a reasonable time after avoidance, the buyer has bought goods in replacement or the seller has resold the goods, the party claiming damages may recover the difference between the contract price and the price in the substitute transaction as well as any further damages recoverable under article 74.
Article 76
(1) If the contract is avoided and there is a current price for the goods, the party claiming damages may, if he has not made a purchase or resale under article 75, recover the difference between the price fixed by the contract and the current price at the time of avoidance as well as any further damages recoverable under article 74. If, however, the party claiming damages has avoided the contract after taking over the goods, the current price at the time of such taking over shall be applied instead of the current price at the time of avoidance.
(2) For the purposes of the preceding paragraph, the current price is the price prevailing at the place where delivery of the goods should have been made or, if there is no current price at that place, the price at such other place as serves as a reasonable substitute, making due allowance for differences in the cost of transporting the goods.
Article 77
A party who relies on a breach of contract must take such measures as are reasonable in the circumstances to mitigate the loss, including loss of profit, resulting from the breach. If he fails to take such measures, the party in breach may claim a reduction in the damages in the amount by which the loss should have been mitigated.
Section III. Interest
Article 78
If a party fails to pay the price or any other sum that is in arrears, the other party is entitled to interest on it, without prejudice to any claim for damages recoverable under article 74.
Section IV. Exemption
Article 79
(1) A party is not liable for a failure to perform any of his obligations if he proves that the failure was due to an impediment beyond his control and that he could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences.
(2) If the party's failure is due to the failure by a third person whom he has engaged to perform the whole or a part of the contract, that party is exempt from liability only if:
(a) he is exempt under the preceding paragraph; and
(b) the person whom he has so engaged would be so exempt if the provisions of that paragraph were applied to him.
(3) The exemption provided by this article has effect for the period during which the impediment exists.
(4) The party who fails to perform must give notice to the other party of the impediment and its effect on his ability to perform. If the notice is not received by the other party within a reasonable time after the party who fails to perform knew or ought to have known of the impediment, he is liable for damages resulting from such nonreceipt.
(5) Nothing in this article prevents either party from exercising any right other than to claim damages under this Convention.
Article 80
A party may not rely on a failure of the other party to perform, to the extent that such failure was caused by the first party's act or omission.
Section V. Effects of avoidance
Article 81
(1) Avoidance of the contract releases both parties from their obligations under it, subject to any damages which may be due. Avoidance does not affect any provision of the contract for the settlement of disputes or any other provision of the contract governing the rights and obligations of the parties consequent upon the avoidance of the contract.
(2) A party who has performed the contract either wholly or in part may claim restitution from the other party of whatever the first party has supplied or paid under the contract. If both parties are bound to make restitution, they must do so concurrently.
Article 82
(1) The buyer loses the right to declare the contract avoided or to require the seller to deliver substitute goods if it is impossible for him to make restitution of the goods substantially in the condition in which he received them.
(2) The preceding paragraph does not apply:
(a) if the impossibility of making restitution of the goods or of making restitution of the goods substantially in the condition in which the buyer received them is not due to his act or omission;
(b) the goods or part of the goods have perished or deteriorated as a result of the examination provided for in article 38; or
(c) if the goods or part of the goods have been sold in the normal course of business or have been consumed or transformed by the buyer in the course of normal use before he discovered or ought to have discovered the lack of conformity.
Article 83
A buyer who has lost the right to declare the contract avoided or to require the seller to deliver substitute goods in accordance with article 82 retains all other remedies under the contract and this Convention.
Article 84
(1) If the seller is bound to refund the price, he must also pay interest on it, from the date on which the price was paid.
(2) The buyer must account to the seller for all benefits which he has derived from the goods or part of them:
(a) if he must make restitution of the goods or part of them; or
(b) if it is impossible for him to make restitution of all or part of the goods or to make restitution of all or part of the goods substantially in the condition in which he received them, but he has nevertheless declared the contract avoided or required the seller to deliver substitute goods.
Section VI. Preservation of the goods
Article 85
If the buyer is in delay in taking delivery of the goods or, where payment of the price and delivery of the goods are to be made concurrently, if he fails to pay the price, and the seller is either in possession of the goods or otherwise able to control their disposition, the seller must take such steps as are reasonable in the circumstances to preserve them. He is entitled to retain them until he has been reimbursed his reasonable expenses by the buyer.
Article 86
(1) If the buyer has received the goods and intends to exercise any right under the contract or this Convention to reject them, he must take such steps to preserve them as are reasonable in the circumstances. He is entitled to retain them until he has been reimbursed his reasonable expenses by the seller.
(2) If goods dispatched to the buyer have been placed at his disposal at their destination and he exercises the right to reject them, he must take possession of them on behalf of the seller, provided that this can be done without payment of the price and without unreasonable inconvenience or unreasonable expense. This provision does not apply if the seller or a person authorized to take charge of the goods on his behalf is present at the destination. If the buyer takes possession of the goods under this paragraph, his rights and obligations are governed by the preceding paragraph.
Article 87
A party who is bound to take steps to preserve the goods may deposit them in a warehouse of a third person at the expense of the other party provided that the expense incurred is not unreasonable.
Article 88
(1) A party who is bound to preserve the goods in accordance with article 85 or 86 may sell them by any appropriate means if there has been an unreasonable delay by the other party in taking possession of the goods or in taking them back or in paying the price or the cost of preservation, provided that reasonable notice of the intention to sell has been given to the other party.
(2) If the goods are subject to rapid deterioration or their preservation would involve unreasonable expense, a party who is bound to preserve the goods in accordance with article 85 or 86 must take reasonable measures to sell them. To the extent possible he must give notice to the other party of his intention to sell.
(3) A party selling the goods has the right to retain out of the proceeds of sale an amount equal to the reasonable expenses of preserving the goods and of selling them. He must account to the other party for the balance.
Part IV. Final provisions
Article 89
The Secretary-General of the United Nations is hereby designated as the depositary for this Convention.
Article 90
This Convention does not prevail over any international agreement which has already been or may be entered into and which contains provisions concerning the matters governed by this Convention, provided that the parties have their places of business in States parties, to such agreement.
Article 91
(1) This Convention is open for signature at the concluding meeting of the United Nations Conference on Contracts for the International Sale of Goods and will remain open for signature by all States at the Headquarters of the United Nations, New York until 30 September 1981.
(2) This Convention is subject to ratification, acceptance or approval by the signatory States.
(3) This Convention is open for accession by all States which are not signatory States as from the date it is open for signature.
(4) Instruments of ratification, acceptance, approval and accession are to be deposited with the Secretary-General of the United Nations.
Article 92
(1) A Contracting State may declare at the time of signature, ratification, acceptance, approval or accession that it will not be bound by Part II of this Convention or that it will not be bound by Part III of this Convention.
(2) A Contracting State which makes a declaration in accordance with the preceding paragraph in respect of Part II or Part III of this Convention is not to be considered a Contracting State within paragraph (1) of article 1 of this Convention in respect of matters governed by the Part to which the declaration applies.
Article 93
(1) If a Contracting State has two or more territorial units in which, according to its constitution, different systems of law are applicable in relation to the matters dealt with in this Convention, it may, at the time of signature, ratification, acceptance, approval or accession, declare that this Convention is to extend to all its territorial units or only to one or more of them, and may amend its declaration by submitting another declaration at any time.
(2) These declarations are to be notified to the depositary and are to state expressly the territorial units to which the Convention extends.
(3) If, by virtue of a declaration under this article, this Convention extends to one or more but not all of the territorial units of a Contracting State, and if the place of business of a party is located in that State, this place of business, for the purposes of this Convention, is considered not to be in a Contracting State, unless it is in a territorial unit to which the Convention extends.
(4) If a Contracting State makes no declaration under paragraph (1) of this article, the Convention is to extend to all territorial units of that State.
Article 94
(1) Two or more Contracting States which have the same or closely related legal rules on matters governed by this Convention may at any time declare that the Convention is not to apply to contracts of sale or to their formation where the parties have their places of business in those States. Such declarations may be made jointly or by reciprocal unilateral declarations.
(2) A Contracting State which has the same or closely related legal rules on matters governed by this Convention as one or more non-Contracting States may at any time declare that the Convention is not to apply to contracts of sale or to their formation where the parties have their places of business in those States.
(3) If a State which is the object of a declaration under the preceding paragraph subsequently becomes a Contracting State, the declaration made will, as from the date on which the Convention enters into force in respect of the new Contracting State, have the effect of a declaration made under paragraph (1), provided that the new Contracting State joins in such declaration or makes a reciprocal unilateral declaration.
Article 95
Any State may declare at the time of the deposit of its instrument of ratification, acceptance, approval or accession that it will not be bound by subparagraph (1) (b) of article 1 of this Convention.
Article 96
A Contracting State whose legislation requires contracts of sale to be concluded in or evidenced by writing may at any time make a declaration in accordance with article 12 that any provision of article 11, article 29, or Part II of this Convention, that allows a contract of sale or its modification or termination by agreement or any offer, acceptance, or other indication of intention to be made in any form other than in writing, does not apply where any party has his place of business in that State.
Article 97
(1) Declarations made under this Convention at the time of signature are subject to confirmation upon ratification, acceptance or approval.
(2) Declarations and confirmations of declarations are to be in writing and be formally notified to the depositary.
(3) A declaration takes effect simultaneously with the entry into force of this Convention in respect of the State concerned. However, a declaration of which the depositary receives formal notification after such entry into force takes effect on the first day of the month following the expiration of six months after the date of its receipt by the depositary. Reciprocal unilateral declarations under article 94 take effect on the first day of the month following the expiration of six months after the receipt of the latest declaration by the depositary.
(4) Any State which makes a declaration under this Convention may withdraw it at any time by a formal notification in writing addressed to the depositary. Such withdrawal is to take effect on the first day of the month following the expiration of six months after the date of the receipt of the notification by the depositary.
(5) A withdrawal of a declaration made under article 94 renders inoperative, as from the date on which the withdrawal takes effect, any reciprocal declaration made by another State under that article.
Part IV. Final provisions
Article 98
No reservations are permitted except those expressly authorized in this Convention.
Article 99
(1) This Convention enters into force, subject to the provisions of paragraph (6) of this article, on the first day of the month following the expiration of twelve months after the date of deposit of the tenth instrument of ratification, acceptance, approval or accession, including an instrument which contains a declaration made under article 92.
(2) When a State ratifies, accepts, approves or accedes to this Convention after the deposit of the tenth instrument of ratification, acceptance, approval or accession, this Convention, with the exception of the Part excluded, enters into force in respect of that State, subject to the provisions of paragraph (6) of this article, on the first day of the month following the expiration of twelve months after the date of the deposit of its instrument of ratification, acceptance, approval or accession.
(3) A State which ratifies, accepts, approves or accedes to this Convention and is a party to either or both the Convention relating to a Uniform Law on the Formation of Contracts for the International Sale of Goods done at The Hague on 1 July 1964 (1964 Hague Formation Convention) and the Convention relating to a Uniform Law on the International Sale of Goods done at The Hague on 1 July 1964 (1964 Hague Sales Convention) shall at the same time denounce, as the case may be, either or both the 1964 Hague Sales Convention and the 1964 Hague Formation Convention by notifying the Government of the Netherlands to that effect.
(4) A State party to the 1964 Hague Sales Convention which ratifies, accepts, approves or accedes to the present Convention and declares or has declared under article 92 that it will not be bound by Part II of this Convention shall at the time of ratification, acceptance, approval or accession denounce the 1964 Hague Sales Convention by notifying the Government of the Netherlands to that effect.
(5) A State party to the 1964 Hague Formation Convention which ratifies, accepts, approves or accedes to the present Convention and declares or has declared under article 92 that it will not be bound by Part III of this Convention shall at the time of ratification, acceptance, approval or accession denounce the 1964 Hague Formation Convention by notifying the Government of the Netherlands to that effect.
(6) For the purpose of this article, ratifications, acceptances, approvals and accessions in respect of this Convention by States parties to the 1964 Hague Formation Convention or to the 1964 Hague Sales Convention shall not be effective until such denunciations as may be required on the part of those States in respect of the latter two Conventions have themselves become effective. The depositary of this Convention shall consult with the Government of the Netherlands, as the depositary of the 1964 Conventions, so as to ensure necessary co-ordination in this respect.
Article 100
(1) This Convention applies to the formation of a contract only when the proposal for concluding the contract is made on or after the date when the Convention enters into force in respect of the Contracting States referred to in subparagraph (1) (a) or the Contracting State referred to in subparagraph (1) (b) of article 1.
(2) This Convention applies only to contracts concluded on or after the date when the Convention enters into force in respect of the Contracting States referred to in subparagraph (1)(a) or the Contracting State referred to in subparagraph (1)(b) of article 1.
Article 101
(1) A Contracting State may denounce this Convention, or Part II or Part III of the Convention, by a formal notification in writing addressed to the depositary.
(2) The denunciation takes effect on the first day of the month following the expiration of twelve months after the notification is received by the depositary. Where a longer period for the denunciation to take effect is specified in the notification, the denunciation takes effect upon the expiration of such longer period after the notification is received by the depositary.
DONE at Vienna, this day of eleventh day of April, one thousand nine hundred and eighty, in a single original, of which the Arabic, Chinese, English, French, Russian and Spanish texts are equally authentic.
IN WITNESS WHEREOF the undersigned plenipotentiaries, being duly authorized by their respective Governments, have signed this Convention. 


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