Corporate Practice Series Portfolio No. 79-1st, Special Committees of Independent Directors, discusses special negotiating committees, demand investigation committees, and special litigation committees. The portfolio initially discusses the fundamental concepts of “disinterestedness” and “independence”  of committee members. The portfolio then discusses the legal standards, composition, and authority for each type of committee, as well as particular issues that apply to each.

Portfolio 79-1st: Special Committees of Independent Directors

I. Introduction

II. `Disinterestedness' and `Independence' of Committee Members
    . Introductory Material
    A. Disinterestedness
    B. Independence
    C. Making the Judgment

III. The Special Negotiating Committee
    A. Why Have a Special Negotiating Committee?
         1. Alternatives to a special negotiating committee
         2. Reasons to prefer a special negotiating committee
    B. Transactions in Which to Use the Special Negotiating Committee and Its Effect
         1. Majority stockholder squeezeout
         2. Other transactions involving a majority stockholder
         3. Transactions involving directors or in which directors have an interest
         4. Management buyout proposals and other transactions in which management has an interest
    C. Simulating Arm’s-Length Negotiations
         1. SNC's obligation to be informed of its responsibilities
         2. Ability to negotiate with the other side
    D. Committee Powers
         1. In general
         2. Limitations
    E. Committee Membership and Procedures
         1. Number of committee members
         2. Compensation of committee members
         3. Indemnification and director liability protections
         4. Chairing the committee
         5. Committee advisors
         6. Committee meetings
         7. Committee recordkeeping
         8. Notetaking by committee members
         9. Materials distributed to the committee

IV. Special Committees in the Litigation Context
    . Introductory Material
    A. Stockholder Standing
    B. The Demand Requirement
         1. Distinguishing between derivative and direct claims
         2. Universal demand states
              a. The Model Business Corporation Act
              b. The Principles of Corporate Governance
         3. Delaware
              a. Demand excused
              b. Demand wrongfully refused
    C. The Demand Investigation Committee
         1. Determining if there has been a demand
         2. Forming the demand investigation committee
              a. Committee membership
              b. Scope of authority
              c. The retention of counsel
         3. The investigation process
              a. Issues of timing
              b. The collection and review of documents
              c. The interview process
              d. Recordkeeping
         4. Judicial review of the committee’s recommendation
    D. The Special Litigation Committee
         1. Governing law and federal policy
         2. Forming the special litigation committee
              a. Committee membership
              b. Scope of authority
              c. The retention of counsel
         3. The investigation process
              a. Stay of discovery during the investigation
              b. The mechanics of the investigation
              c. The range of alternatives
              d. Discovery after the SLC completes its report
         4. Judicial review of an SLC’s determination
              a. The New York model
              b. The Delaware model
              c. Iowa
              d. Statutory provisions

Portfolio 79-1st: Special Committees of Independent Directors

Wks. 1 Delaware General Corporation Law, §141(c)

Wks. 2 California General Corporation Law, §311

Wks. 3 805 Illinois Compiled Statutes Annotated §5/8.40

Wks. 4 Maryland Code Annotated, Corporations & Associations §2-411

Wks. 5 Massachusetts General Laws Annotated ch. 156D, §8.25

Wks. 6 New York Business Corporation Law, §712

Wks. 7 Ohio Revised Code Annotated §1701.63

Wks. 8 15 Pennsylvania Consolidated Statutes Annotated §1731

Wks. 9 Texas Business Organizations Code, § 21.416

Wks. 10 The Model Business Corporation Act, §8.25

Wks. 11 State Statutory References—Board Committees

Wks. 12 State Statutes—Special Litigation Committees

Wks. 13 Information Request of the Special Committee

Wks. 14 Resolutions of the Board of Directors Creating a Special Negotiating Committee

Wks. 15 Resolutions of the Board of Directors Creating a Demand Investigation Committee

Wks. 16 Minutes of a Meeting of the Demand Investigation Committee of Recipient Corporation

Wks. 17 Introductory Statement Before Witness Interviews on Behalf of a Demand Investigation Committee

Wks. 18 Resolutions of the Board of Directors of Nominal Defendant Corporation Creating a Special Litigation Committee

Wks. 19 Minutes of a Meeting of the Special Litigation Committee of Nominal Defendant Corporation

Wks. 20 Introductory Statement Before Witness Interviews on Behalf of a Special Litigation Committee

Wks. 21 Excerpts from the New York Stock Exchange Listed Company Manual, Independence Requirement and Definition, Audit Committee Members

Wks. 22 Excerpts from the NYSE Amex Company Guide, Independence Requirement and Definition, Audit Committee Members

Wks. 23 Nasdaq Listing Rule 5605, Board of Directors

Wks. 24 General Motors Company Amended and Restated Bylaws

Wks. 25 Council of Institutional Investors' Corporate Governance Policies

Wks. 26 Excerpts from the California Public Employees' Retirement System Global Principles of Accountable Corporate Governance *

Wks. 27 Teachers Insurance and Annuity Association-College Retirement Equities Fund Policy Statement on Corporate Governance

Wks. 28 American Law Institute, Excerpts from Principles of Corporate Governance: Analysis and Recommendations

Wks. 29 Federal Rule of Civil Procedure 23.1 for the U.S. District Courts

Wks. 30 Rule 23.1 of the Court of Chancery of the State of Delaware

Mark S. Hurd
Morris, Nichols, Arsht & Tunnell LLP
Wilmington, Delaware

Andrew M. Johnston
Morris, Nichols, Arsht & Tunnell LLP
Wilmington, Delawareg