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FIDUCIARY DUTIES OF A BOARD OF DIRECTORS

A. General Principles

The Directors have a fiduciary duty to act in the best interest of the corporation and its
stockholders.

x Authority of the Board of Directors – State corporation statutes generally provide
that the business and affairs of the corporation shall be managed by, or under the
direction of, the corporation’s board of directors

x General Standards of Director Conduct - The fiduciary duties of directors are
governed by the law of the state of incorporation.

x Under Delaware law, a director must discharge his duties in good faith, on an
informed basis, and in a manner which the director honestly believes to be in the
best interests of the corporation.

x Duty of Loyalty - requires one to act in good faith, placing the interests of the
corporation and its stockholders ahead of any personal interests. If there is a conflict
of interest, then the transaction must be entirely fair to the corporation.

x Duty of Care - requires one to act on an informed basis, making inquiry into the
affairs of the corporation or a particular action to be taken or decision to be made
with the care a reasonable and prudent person would exercise in similar
circumstances.

x Reliance on Experts - in acquiring information upon which to base
judgments, a director may rely on the corporation's officers, legal counsel,
accountants and other persons as to matters the director honestly believes are
within the person's professional or expert competence.

x Limitation - In In re Emerging Communications, Inc. Shareholders
Litigation, C.A. No. 16415 (Del. Ch. June 4, 2004), the Chancery Court found
that one director, an investment banker with expertise in the
telecommunications industry, was not entitled to rely on the fairness opinion
of the financial advisor to the special committee in voting to approve an
unfair, two-step acquisition by the company’s controlling shareholder. The
court found the director had specialized expertise and knowledge that gave
him far less reason to defer to the valuation of the financial advisor (who had
not been given the company’s latest financial projections by the majority
shareholder). In the court’s view, plausible evidence supported two possible
explanations for the director’s mindset: a deliberate determination to further
personal business interests by exhibiting loyalty to the majority shareholder or
“conscious and intentional” disregard of his responsibility to safeguard the

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