FOURTH DIVI SION March 8, 2007

No. 1-05-3849

SERENE SHAPER and LIO NEL BRAZE

N, ) Appea l from ) the Circuit Court Plaintiffs-Appellants, ) of Co ok Co un ty. ) v. ) ) JOHN H. BRYAN, STEPHEN B. BURKE, JAMES S. ) CROWN, JAMES DIMON, DR. MAUREEN A. FAY, ) O.P., JOHN R. HALL, L

ABAN P. JACKSON, JR., ) JOHN W. KESSLER, ROBERT I. L IPP, RICHARD A. ) MANOOGIAN, DAV

ID C. NOVAK, JOHN W. ) Honorab le ROGERS, JR. and FREDERICK R. STRATTON, JR., ) Mary Anne Mason, ) Judge Presi ding. Defendants-Appellees, ) ) (Bank One Corporation, ) ) Nominal Defendant). )

PRESID ING

JUSTICE

QUI NN delive

red the o pinion of t

he court : Plaintiff shareho lders of

the forme

r Bank One Corpor

ation (B ank One)

filed a c omplaint agains t certai

n member s of the bo ard of di rector s (Boar

d), alle ging that the Bo ard bre ached it s fiduciary duties dur

ing the negotiation and approval of B ank One’s merger with J.P. Morgan Chase & Co. (J.P. Mor

gan). The circ

uit court g

ranted d efenda nts’ motion

to dismiss pl aintiffs ’ second amended complaint with prejudice, and plaintiffs now appea l. On appeal, plaintiffs1-05-3849

2

contend that the circuit court erred by dismissing their second amended complaint, where plaintiffs alleged sufficient facts to both rebut the pre sumption of the business judgment rule and substitute a heightened standard of scrutiny for the business judgment rule. For the following

reasons , we aff

irm. I. Backg round Prior to its

merge r with J.P. Mor

gan, B ank One was eng aged in the busine sses of r

etail banking, commercial banking, cr edit card services, investment manageme nt and private client servi ces. J .P. M organ i s a glob al fin ancial servi ces fi rm engage d in i nvest ment b ankin g, financial services for consumers and businesses, f inancial transaction processing, investment

ma na ge me nt , p ri va te ba nk in g a nd pr iv at e e qu it y. On Januar

y 14 , 2004, J.P. Morgan a nd Bank One annou

nced tha t J.P. Morga

n would acquire Bank One by

a merger of the two companies, re sulting in what was expected to create the second largest financial institution in the country , measured by total assets. Pursuant to the agreed-upon merg er, J.P. Morgan would issue shares of its common stock to Bank One shareholders at a premium of 14% over the closing prices of Bank One common stock on the date of t he annou ncement of the me

rger. The term s of the me rger a greement were

included in the joint proxy statement filed with the Securities and Exchang e Commission. The merger agr

eement provided a succession plan for J.P. Morgan. Following the merge r, the ch ief exec utive off icer (CE O) of J.P. Mo rgan, William B. H arrison , Jr., would continue as CEO for two years, after which time the CEO of Bank One, defendant James Dimon, would succeed Harrison. During the inter im two years, Dimon would serve as president and1-05-3849

3

chief operating officer ( COO) of J.P. Morgan. Harrison, who was chairman of J.P. Morgan before the merger, would c ontinue in that role indefinitely bey ond the two years. The merger agreement also described the c ompensation Dimon was to receive, following the merg er, under his employment agr

eement with J.P. Morgan. Dimon was provided a “pay pledge,” in which he was to receive an annual base sala ry of $1 million and annual bonuses a nd equity-based a

wards no less than 90% of the value of those provided to Harrison. The merg er agr

eement in cluded a provision

requirin g both B ank One a

nd J.P. Morg an to pay a ter mination fee to the other of up to $2.3 billion if either party terminated the merger agreement for various re asons, including the failure of a party ’s board to recommend the merger and the br each by a party of its oblig ation to c all a mee ting and use its re asonable

best eff orts to obtain the approval of its shareholders. The termination fee pr ovision also provided that if the merge r agre ement wa s termina

ted by either p arty

because the requ ired stockholder vote of a p arty was not obtained at that party ’s stockholders’ meeting and a competing acquisition proposal for that par ty w as public ly a

nnounce d before

its stockho lders’ me eting, t hen the pa

rty whose stockholders failed to approve the merge r would owe the other party one-third of the termination fee and the rema ining two -thirds of

the termi nation fe e would be come pay able to th e other p arty if the terminating party

enters into an agreement or complete s an acquisition within 18 months of the termination of the merger ag reement. The termination fee provision also provided that if: (1) the merger agre ement was terminated by either party

because the merger ha

d not been consummated by January 14, 2005, or because of a material brea ch by the other pa

rty that cause s a condition to the merger to not be satisfied; (2) a competing acquisition proposal for a party was1-05-3849

4

made before the merger

agreement was terminated; and ( 3) after the announcement of the competing acquisition proposal, the party for which the competing acquisition proposal was made intentionally brea

ched any of its representations, warranties, covenants or a greements and the brea ch mater ially contribu ted to the failure of the me

rger t o become effec tive, the

n the par ty that commi

tted the b reach w

ill owe the

other pa rty one-thir d of the te rmination fee, an d if within 18 months after this termination of the merger ag reement the breaching par ty enters into an agreement for, or completes, a n acquisition proposal, the remaining two-thirds of the termination fe e w il l b ec om e p aya bl e t o t he ot he r p ar ty. The merg er agr

eement a lso includ ed a rec iprocal

stock opti on agr

eement b etween

J.P. Morgan and Bank One, in which e ach party granted the other an irrevoc able option to purchase, in whole or in part, up to 19% of its outstanding common stock. The stock option granted by Bank One had an exercise price of $44.61 a share, and J.P. Morgan’s stock option had an exercise price of $38.90 a share. The stock options could be e xercised, in whole or in part, if the merge r agre ement is te

rminated because the brea ching c ompany

chang es or withdraws its

recomme ndation of

the merg er, rec ommends a n alternative mer

ger, or fails to

call its shareholders’ meeting to vote on the merg er, or if a third party acquires 20% or more of the

co mp an y. The merger agr

eement further described Ba nk One’s negotiation and investigation of the proposed merger. The Boa rd of Bank One conducted sever al meetings with legal and financial advisors in January 2004, to review a nd discuss strategic considerations relating to the pr oposed merger, the due diligence review of J.P. Morgan, the status of discussions regarding the terms of1-05-3849

5

the proposed merger, and financ ial information regarding the propose d merger. The Board receiv ed a for

mal opinion

from L azard, F rères &

Co., LLC (Lazard), an invest ment bank

ing fir m, that the proposed merger provided a f air exchange ratio to holders of Bank One common stock. The Board’s reasons for re commending that the shareholders approve the me rger included the exchange ratio of Bank One stock a nd other financial considerations, the value of the succe ssion of manag ement wit

h the assu rance t hat Dimon would become CEO of t he merg ed institut

ion in two y ears, st rateg ic fit and

synergist ic result s of a com

bination o f the two c ompanies , growt h potential, and long-term viability of the combined company . On May 25, 2004, the shar eholders of Bank One approved the merg er and the merger closed July 1, 2004. On June 26, 2004, just days before the mer ger closed, The New York Times printed an article that described preliminary negotiations between Harrison and Dimon. Acc ording to the article, Dimon offered to sell Bank One to J.P. Morgan at no pr emium if he were appointed CEO of the new entity immediately . The article specifically stated: “During the neg otiations w

ith Mr. Dimon, [Harri son] foug ht hard to give him self the two extr

a y ears, to

secure a smooth tr

ansition, althoug

h he may have co st J.P. Morgan shareholders extra money in doing so. Mr. Dimon, alway s the tough deal maker, offered to do the deal for no pre mium if he could become chief executive [officer ] immediate ly, accord

ing to two

people c lose to the

deal. When Mr. Harrison resisted, Mr. Dimon insisted on a premium, which Mr. Harrison was able to push down to 14%. The two men declined comment on the specifics of their negotiations.” L andon Thomas, Jr., The Yin, the Yang and the1-05-3849

6

Deal , N.Y. Times, June 27, 2004, §3 (Sunday Business), a t 1. On July 22, 2005, plaintiffs filed their second amende d complaint, in which they cite two article s from Cra

in’s Chica

go Busi ness, disc ussing th e merg er. On Jan uary 19, 2004, a

n article stated that Dimon’s position concerning the merger was that “[g]arnering a relatively meager 15% premium *** [was] better than taking a 30% [premium] deal from a lot of play ers out there.” The article stated that Dimon “didn’t look into what he could g et for Bank One shareho lders fr

om other f

inancia l compani es eag er to bulk up as a ne

w wave o f bank bu

you ts appears to be under way .” The article provided the following statements re garding the market’s reaction to the merger: “The stock market’s reaction to the deal last wee k confirms, by one mea sure at least, the notion that Bank One sold out cheap. As of Thursday ’s market close, Bank One’s total

market v alue had

increa sed by

$5.77 billi on, while

J.P. Morgan ’s had de crease d by just $620 mil lion. Subtr acting J.P. Morga

n’s modes t decline from Ba nk One’s big ga in results in a net increase

in market value f

or both companies of $5.15 billion. Acquirers typic ally suffer at least a short-term drop in stock price, while their targets see an increase . A fully priced ta keover ought to result in a wash between the two, says Thomas McCandle ss, banking analy st with Deutsche Bank in New York. * * * Using that logic, the market is say ing that Bank One could have obtained $4.551-05-3849

7

per share more from J.P. Morgan than it got without overly punishing J.P. Morgan’s stock. Adding that $4.55 to the $51.77 per shar e that Bank One receiv ed resul

ts in a take over pri ce of $56 .32, or $6 3 billion, a 25% prem

ium to Bank One’s Wednesday close of $45.22.” Steve Daniels, Money Left on Table; Dimon's Career v. Bank One's Best Price? ,Crain’s Chicago Business, January 19, 2004. On the same date, another article in Crain’s Chicago Business provided the following discussion:

“J.P. Morg an isn’t the only , and ce rtainly isn’t the b est, merger cand idate for Bank One. The New York ba nk is heavy on exposure to volatile businesses such as investment banking, big-ticket corpora te lending and securities trading. Bank One by

compari son, part

ly thanks to Mr . Dimon’s e fforts, has a more staid book of business, lending to consumers and small companies. L ess glitz, less risk. Wells Far go & Co. , Wachovia

Corp., an d Bank of America Corp. ar e all banks with business mixes closer to that of Bank One and, in the view of some, could have made more suitable partners. One of them, Bank of America, agr eed late last year

to buy FleetB oston Financial Corp. for about $50 billion, a valuation that makes it look like Bank One went cheaply . Mr. Dimon tells our reporter that he didn’t shop Ban k One ar ound. This

deal is the

perfect fit, he sa

ys. For him it is. Those other banks aren’t based in New York.” J.P. Morgan’s a Great Catchbut for whom? , Crain’s Chicago Business, January 19, 2004. In their second amende d complaint, plaintiffs alleged that the defendants, as off icers and1-05-3849

8

directo rs of Ba

nk One, owed fiduc iary

duties to p laintiff

s to act in good faith

and with loya

lty regar ding an y bu siness de cisions c oncerni ng Ban k One. Pla

intiffs f irst alle ged tha

t defend ants breached their fiduciary

duties where the merger ag reement for a 14% premium to Bank One shareho lders wa s inadequ ate and w here de fendant s should ha ve soug ht out a mor

e profita ble transaction by ope

ning the acquisition of Bank One up to other bidders. Secondly , plaintiffs alleged that Dimon suffered from ce rtain conflicts when negotiating the terms of the merger, namely, his postmerg er compensation and succession of Harrison as CEO. Plaintiffs maintained that the 14% premium was proposed only after Dimon’s secret no-premium offer in e xchange for immediately becoming

CEO was rejected by

Harrison. Lastly, plaintiffs alleged that the Board’s approval of the merger terms that include d a termination fee and a grant of cross-options created an insurmountable obstacle to a higher offer . On November 22, 2005, the circuit court gra nted defendants’ motion to dismiss plaintiffs’ second amended complaint pursuant to section 2-615 of the Code of Civil Procedure (Code) (735 ILCS 5/2-615 (West 2004)), and plain tiffs now appeal.

II . Analy sis A. Standard of Review This court reviews a trial court's dismissal based upon section 2-615 de novo . Kopka v. Kamensk y & Rubenste in , 354 Ill. App. 3d 930, 933 (2004). " A section 2-615 motion attacks the legal sufficiency

of a complaint, and this court's inquiry is limited to whether the allegations of the complaint, when viewed in the light most favorable to the plaintiff, are sufficient to state a cause of actio n upon which relief can be grant ed." Kopka , 354 Ill. App. 3d at 933. "In order to1-05-3849

9

withstand a motion to dismiss based on section 2-615, a compla int must alle ge fac

ts suffic iently setting fort h the essent ial element s of the cause o f action." Kopka , 354 Ill. App. 3d at 933. "This court must accept as true all well-pled factua l allegations contained in the complaint and construe all reasonable inferences there from in favor of the plaintiff. [Citation.] However, a plaintiff cannot rely simply on concl usions of l aw or fact unsu pported by specific f actual allegati ons." Kopka , 354 Ill. App. 3d at 933-34.

B. Unde rly ing Prec epts and t

he Dela ware B usiness Judg

ment Rule The principal issues raised on appeal involve the application of the duty of loyalty

and duty of car

e standard of the business judgment rule. These issues will be dete rmined by application of the substantive law of Delaware, since Bank One is incorporated in that state. Spillyards v. Abboud , 278 Ill. App. 3d 663, 667 (1996). The fiduciary

duties owed by direc

tors of a Delaware corpora tion are the duties of due care and loy

alty. In re The Walt Disney Co. Derivative Litigation , 907 A.2d 693, 745 (Del. 2005). Delaware law is clear that the business a nd affairs of a corporation are managed by

or under the direction of the board of directors. In re The Walt Disney Co. , 907 A.2d at 746. The business j udgmen

t rule ser ves to pro tect and

promote the role of

the boar d as the ul

timate manager of the corpora

tion. In re The Walt Disney Co. , 907 A.2d

at 746. B ecause

courts a re ill equipped to engage in post hoc substantive review of business decisions, the business judgment rule “Operates to preclude a c ourt from imposing itself unreasonably on the business and affairs of a corporation.” In re The Walt Disney Co. , 907 A .2d at 746, q uoti ng Cede & Co. v. Technicolor, Inc. , 634 A.2d 345, 360 (Del. 1993) ( Ced e III ) .1-05-3849

10

The business judgment rule creates a “pr esumption that in making a business decision, the directors of a corporation acted on a n informed basis, ... and in the honest belief that the action taken was in the best interests of the company [and its shareholders.]” In re The Walt Disney Co. , 907 A .2d at 747, q uoti ng Aronson v . Lew is , 473 A.2d

805, 812 (Del. 1984 ). This presumption applies when there is no evidence of fra ud, bad faith, or self-dealing in the usual sense of personal profit or betterment on the part of the dir ectors. In the absenc e of this evidence, the boar d’s deci sion will be

upheld un

less it ca nnot be at tributed t o any rationa l business purpose. In re The Walt Disney Co. , 907 A.2d at 747. When a plaintiff fails to rebut the presumption of the business judgment rule, he or she is not entitled to any remedy, be

it legal or equitable, unless the transaction constitutes waste. In re The Walt Disney Co. , 907 A.2d at 747. This presumption can be rebutted by a showing that the board violated one of its fiduciary duties in connection with the challenged transaction. Ced e III , 634 A.2d at 361. I f the busi

ness judgment rule is rebutted, the burden shifts to the director defe ndants to demonstrate that the challenged transaction was “e ntirely fair”

to the corporation and the plaintiff shareholders. Cede III , 634 A.2d at 361. Under the entire fairness standard of judicial review, the defendant directors must establish that the transaction was the product of fair dea ling and fair price. Cede III , 6 34 A. 2d at 36 1. In a dd it io n, in th e r ev ie w o f a tr an sa ct io n i nv ol vi ng a s al e o f a co mp an y, the directors have the burden of establishing that the pr ice offered was the highe st value reasonably

available under the circumstances. Ced e III , 634 A .2d at 361, c itin g Revlon, Inc. v. MacAndrews & Forbes Holding s, Inc. , 506 A.2d 173 (Del. 1986).1-05-3849

11 C. Direc tor Duty

of Loya lty Plaintiffs first contend that the circuit court erred in dismissing their second ame nded complaint where the business judgment rule was rebutted by plaintiffs’ allegations that Dimon engaged in self-dea

ling during merger ne gotiations when he offered no premium for sha reholders in exchange for his immediately becoming CEO of the newly formed entity. Plaintiffs arg ue that following J.P. Morgan’s rejection of Dimon’s no-premium offer, D imon agreed to the low 14% premium only because

it would allow him to act as president and COO of the new company for two years, f

ollowed by his promotion to CEO. The Dela ware Supreme Cour

t has def ined the d uty of loy alty of offic ers and d

irectors to their co rporation and its sh arehold ers in br oad and u nyi elding t

erms: “‘Corporate officers and directors are not permitted to use their position of trust and confidence to further their private intere sts, ...A public policy, existing through the years, and derived from a profound knowledge of human characteristics and motives, has established a rule that demands of a corpora te officer or di re ct or , p er em pt or il y an d i ne xo ra bl y, t he mo st sc ru pu lo us ob se rv an ce of hi s d ut y, not only affirma tively to protect the inter

ests of the

corpora tion commit

ted to his charge, but also to refrain fr om doing anything

that would work injury to the corpora tion, or to deprive it of prof it or adva ntage w hich his sk

ill and ab ility might properly

bring to it, or to enable it to make in the reasonable and lawf ul exercise of its powe

rs. The r ule that r equires an undivid

ed and un selfish loya

lty t o the corporation demands that there be no conflict betwe en duty and self- interest.’”1-05-3849

12

Ced e III , 634 A .2d at 361, q uoti ng Guth v. Loft, I nc. , 5 A.2d 503, 510 (Del. 1939). Essentia lly, the duty

of loy alty mandate s that the b est inter est of the corpora tion and its shareholders takes precedenc e over any interest possessed by a

director, officer or controlling shareholder and not shared by the stockholders generally

. Ced e III , 634 A.2d at 361. The classic examples of director self-interest in a business transac tion involve either a directo r appea

ring on b oth sides o f a tran saction or a dire ctor re ceiving a personal benef

it from a transaction not received by the shareholders. In re The Walt Disney Co. , 907 A.2d at 751. In this case, plaintiffs have failed to allege sufficient facts to show that Dimon was selfinterested in the merger. There was no evidence that Dimon appeared on both sides of the merger between Ba

nk One and J.P. Morgan or that he received a pe rsonal benefit not shared by shareholders. While plaintiffs alleged that Dimon’s negotiations to reta in his CEO position at the newly forme d company constituted self- dealing, Delaware law ha s routinely rejected the notion that a director’s interest in maintaining his office is a debilitating factor. See Benihana of Toky o, Inc. v. Benihana , Inc. , 891 A.2d 150, 175 (Del. 2005). In addition, the re cord shows that the terms of the merger ag

reement were disclosed in the joint proxy statement. The merger agreement, which was approve d by the Boa rd and shareholders, disclosed the pay pledge that Dimon was to receive and his succession to become CEO. Plaintiffs cite HMG/Courtland Properties, Inc. v. Gra y , 749 A.2d 94, 113-14 (Del. 1999), in sup port o f the ir ar

gume nt tha t “pr oof o f [Dimon’s ] undisclosed self-dealing , in itself , is suf fic ien t t o re but th e * * * bu si nes s j udg men t ru le a nd i nvo ke e nt ire fai rne ss rev iew .” In1-05-3849

13

HMG/Courtland Properties, Inc. , the Delaware court determined that one of the directors of an in co rp or at ed re al es ta te in ve st me nt tr us t e ng ag ed in se lf -d ea li ng wh er e t he di re ct or ha d a bu yside interest in the sale of corporate property where he was also a partner in one of the investors. HMG/Courtland Properties, Inc. , 749 A. 2d at 113-14. Unlike HMG/Courtland Properties, Inc. , th er e a re no al le ga ti on s i n t hi s c as e t ha t D im on wa s o n b ot h s id es of th e m er ge r. Ac co rd in gl y, we fin d plai ntiff

s’ rel iance o n that case un convi ncing.

D. Board’s Duty

of Care Plaintiffs next contend that the circuit court erred by dismissing their second amended complaint, where they

alleged sufficient facts to show that the Boa rd breached its duty

of care and, ther efore, rebutte d the business judg ment rule . Plaintiff

s argue that the B oard bre ached it s duty of care where the merg er deci sion was u ninforme d and the B oard’s a ctions we re gro ssly negligent where the mer

ger agree ment was unfair on its face. Plaintiffs also argue that the Board failed to consider or seek out offers from banks othe r than J.P. Morgan. The fiduciary

duty of due ca

re requires that directors of a Dela ware corporation “‘use that amount of care which ordinarily careful and prudent men would use in similar circumstance s,’” and “‘consider all material information reasona bly available’”

in making business decisions. In re The Walt Disney Co. , 907 A .2d at 749, q uoti ng Graham v. Allis-Chalmers Manufacturing Co. , 188 A.2d 125, 130 (1963). Any de ficiencies in the directors’ process are actionable only if the directors’ actions are grossly negligent. In re The Walt Disney Co. , 907 A.2d at 749. In a pply ing the b usiness ju dgment r ule, a co urt will no t find a bo ard to ha ve brea ched its1-05-3849

1 The Delaware chance

ry court dismissed a similar bre ach of fiduciary claim brought by J.P. Morgan shareholders based on the same New Yor k Times article. See In re J.P. Morgan Chase & Co. Shareholder L itigation , 906 A.2d 808 (Del. 2005). In that ca se, J.P. Morgan shareho lders br

ought a breach of fiduc iary

duty claim ag ainst J.P. Mor

gan’s b oard of d

irectors, alleging that the corporation paid an unne cessary premium to Bank One because it turned down Dimon’s offer of a no-premium deal continge nt upon Dimon immediately becoming CEO of merged corporation. The cha ncery c ourt held that the fiduciary duty claim was der

ivative rather 14 duty of car

e unless the directors individually a nd the board collectively

have failed to inform themselves fully and in a de liberate manner before voting a s a board upon a transaction as significant as a proposed merge r or sale of the company

. Ced e III , 634 A.2d at 368. Only on such a judicial finding will a board lose the protection of the business judg ment rule under the duty of car

e element and will a trial court be required to scrutinize the cha llenged transaction under an entire fairness standard of r eview. Ced e III , 634 A.2d at 368. Plaintiffs first argue that the Board bre ached its duty of c are where it failed to inform itself of “Dimon’s secret no-premium offer.” Plaintiffs ar gue that the alleged no-pre mium offer shows that the ultimate 14% premium obtained had no relationship to the actual value of Ba nk One, but w as simply

the prem ium price Dimon was

able to ne gotiate

as the pr ice of “ delay

ing his takeover” as CEO of the newly formed company . Plaintiffs base this argument on the June 27, 2004, New York Times article, which reported that during negotiations with Harrison, Dimon “o ff er ed to do th e d ea l f

or no pr em iu m i f h e c ou ld be co me ch ie f e xe cu ti ve im me di at el y, according to two people close to the deal.” 1 Howeve r, nothing in the ar ticle or p laintiff

s’1-05-3849

than a dir ect cla im; that de

mand upon

the corp oration' s board to pursue th e deriva

tive clai m owned by the corp oration w as not excu sed; and t hat the sh arehold

ers wer e not individually damaged by

J.P. Morgan’s failure to disclose the alleged no-pre mium offer of merger made by Dimon, as required for their breach of duty to disclose claim. The Supreme Court of Delaware affirmed the chancery

court’s determination. In re J.P. Morgan Chase & Co. Shareholders Litigation , 906 A.2d 766 (2006). 15 allega tions shows

that the me

mbers of the Boa rd were unawar e of Dimon ’s negotiations with Harrison. In addition, even if the B oard members were unaware of Dimon’s alleged no-premium offer, the Board did not approve a no- premium condition as part of the merger ag reement and the duty of the Boa

rd to inform itself before making business decisions does not require tha t the Board be intimately

familiar with every

proposal and fact during the neg otiating process. See Brehm v. Eisner , 746 A. 2d 244, 259 (Del. 2000) (“the standard for judging the informational component of the directors’ decisionmaking does not mean tha t the Board must be informed of every fact”); see also In re The Walt Disney Co. , 907 A.2d 693 (members of the compensation committee were sufficiently informed where they

were presented with key

terms of the agreement to be approved, but we re not privy to all aspec

ts of underlying

negotiations). Rather, an examination of the Board’s duty of care focuses on the Boar d’s decisionmaking progress and whether the Board has acted in a “deliberate and knowledgea ble way in identify

ing and exploring alternatives.” Citron v. Fairchild Camera & I nstrument Corp. , 569 A.2d 53, 66 (Del. 1989). In thi s case, t

here is a mple evid ence to show that the Boar d enga ged in a process to consider all material information reasonably available before voting on the merg er agreement.1-05-3849

16

The joint proxy

statemen t indicate s that Ba

nk One dir

ectors d iscussed the propo sed merg er in numerous Board meetings, that Boar d members were briefed and updated on me rger discussions by Dimon, and that the Boa rd authorized Dimon to continue negotiations relating to the merg er. The joint proxy statement indicates that the Boa rd considered a formal opinion from L azard; that the proposed merger provided a f air exchange ratio to holders of Bank One common stock; and that the arrangements provided for D imon to serve as president and COO after the merg er, then succeed Harrison as CEO on the second annive rsary of the completion of the merger. The joint proxy statement also shows that the Boar d considered, inter alia , the f ollo wing: “[I]ts understanding of Bank One’s businesses, operations, financial condition, earnings and prospects (including the r eport of Bank One manage ment of the results of Bank One’s due diligenc e review of J.P. Morgan Chase); [I]ts understanding of the current a nd prospective economy

and market and industry environment in which B ank One and J.P. Morgan Chase operate ***; [T]he reports of Bank One management a nd the financial presentation by Laza rd to Ba nk One’s board of directors conce

rning th e busines s, opera

tions, financial condition, earnings and prospects of J.P. Morgan Chase and the expected financial impact of the merger on the c ombined company ***; [T]he value of the exchange ratio *** relative to the curre nt and historical trading prices o f the com

mon stock o f each o f Bank One and J.P. M organ Chase and rela tive to the analy ses prep ared by

Laza rd of com parativ e valuat

ions for J.P. Morgan Chase and Bank One; [and]1-05-3849

17 [T]he potential cost saving opportunities, currently e stimated to be approximately $2.2 billion pre-tax annually when fully phase d-in ***.” The joint proxy statement made clear that the Board considered numerous fac tors and received advice internally

and from independent advisors as to the advisability of the merger agr

eement. We therefore find that plaintiffs did not allege sufficie nt facts to show that the Board was uninformed regarding the me rger decision. Plaintiffs, nonetheless, argue that the Board was grossly negligent in approving the 14% premium where it could have negotiated an e xchange ratio that was more favorable to B ank One shareholders. Plaintiffs argue that the perf ormance of the merged compa ny’s stock demonstrates that the Board breached its duty of care by

approving the 14% premium because during most of the time following the merger, the stock dec reased and resulted in little or no actual premium for Bank One shareholders. Howeve r, plaintiffs do not cite case law to support their argument that poor stock performance of a merg ed company c an demonstrate a Board’s brea ch of duty of c are. Rather, t he busine ss judgme

nt rule “ ‘Opera

tes to pre clude a c ourt fro m imposing itself

unreasonably

on the busi

ness and a

ffairs o f a corp oration’ ” preci sely because “courts are ill equipped to engage in post hoc substantive review of business decisions.” In re The Walt Disney Co. , 907 A .2d at 746, q uoti ng Ced e III , 634 A.2d at 360. Plaintiffs’ allegations regarding the postmerger stock performance do not relate to whether the Board was suff iciently informed at the time it approved the

merge r agre ement. Ac cordingly, we find that plainti ffs have failed to raise an issue as to whether the Board exercised due care in approving the merg er agreement.1-05-3849

18 E. Board’s Fiduciary

Duty Under the Unocal/Omnicare Analysis Plaintiffs lastly contend that the termination fee provisions in the merger agree ment were coerci ve and un warran ted prote ctive mea sures tha t demonstr

ate that t he Boar d breac hed its dut

y of care pursuant to the Supreme Court of Delawa re’s determinations in Unocal Corporation v. Mesa Petroleum Co. , 493 A.2d 946 (Del. 1985), and Omnicare, Inc. v. N CS Healthcare, Inc. , 818 A.2d 914 (Del. 2003) . In Unocal , the Supre

me Court of

Delawa re reaffirmed

the appli cation of

the busine ss judgment rule in the context of a hostile battle for control of a Delawa re corporation where board action is taken to the exclusion of, or in limitation upon, a valid stockholder vote. Unocal , 493 A. 2d at 954. Unocal recognized that directors are ofte n faced with an “inherent conflict of interest” during contests for corporate control “[b]ecause of the omnipresent specter that a board may be actin g prima rily in its own in

terests, rather

than those

of the corporation and its shareholders.” Unocal , 493 A.2d at 954. Unocal thus requires a reviewing court to apply an enhanced standard of review to dete rmine whether the directors “had rea sonable grounds for believing that a danger to cor porate policy a

nd effectiveness existed” and that the board’s response was "reasonable in re lation to the threat posed.” Unocal , 493 A.2d at 955. If the board action meets the Unocal standard, it is accorded the protection of the business judgment r ule. Unocal , 493 A. 2d at 955. The scrutiny of Unocal has not been limited to the adoption of a defensive measure during a hostile contest for control. I n Moran v. Household International, I nc. , 500 A.2d 1346, 1350-53 ( Del. 1985 ), the Supr

eme Court

of Delaware hel d that Unocal also applied to a1-05-3849

2 The dissents in Omnicare by former Chief Justice Veasey and c

urrent Chief Justice Steele a rgue that Unocal should not have applied, but rather the business judgment rule. Omnicare , 818 A.2d at 943, 947 (Veasey , C.J., and Steele, J., dissenting). 19 preemptive defensive measure wher e the corporation was not under immediate “attack.” Subsequent cases have also affirmed the applica tion of Unocal when a board takes defensive measures in reaction to a perceived “ threat to corporate policy and effectiveness which touches upon issues of control.” Gilbert v. El Paso Co. , 575 A.2d 1131, 1144

(Del. 19 90); see

also Paramount Communications, Inc. v. Time, I nc. , 571 A.2d 1140 (Del. 1990). In Omnicare , 818 A.2d at 935, a majority of the Delaware Supreme Court applied the two-stage analysis of Unocal in the con text of dea

l-protec tion devic es set in p lace to protect a proposed merger. 2 The first stage of the Unocal analysis require s a board to demonstrate “‘that they [have] rea sonable g

rounds for believing that

a dang er to cor

porate p olicy

and eff ectiveness existed’” without such measures. Omnicare , 818 A .2d at 935, q uoti ng Unocal , 493 A.2d at 955. The second stage of Unocal procee ds in two ste ps: the boa

rd must est

ablish tha t the dealprotect ion devic es are ( 1) not coe rcive or preclus ive and ( 2) within a range of reas onable responses to the danger to corporate policy and eff

ectiveness. The analysis is disjunctive- if the deal-pr otection devices are coe rcive or preclus ive, they

are not w ithin a ra nge of reasona ble responses, but those devices may be outside the range of reasona ble responses even if not coercive or preclusive. Omnicare , 818 A .2d at 935, c itin g Unocal , 493 A.2d at 955. In Omnicare , the boar

d of dire ctors of

NCS Health

care, I nc. appr oved a me

rger w ith Genesis Health Ventures, I nc. The deal was “protected” with a thr ee-part defense that included:1-05-3849

3 Such provision requires that a merger ag reement be placed before a corporation’s stockholders for a vote, even if the corpora tion’s board of directors no longer rec ommends it. 8 Del. C. §251(c). 20 (1) the in clusion of a “sect ion 251(c ) provision” in the m erger agree ment; 3 (2) the absence of any effec tive fiduc iary

out claus e; and (3 ) a voting agree ment betw een two sharehol ders and Genesis which ensured that a majority of shareholders voted in favor of the transac tion. After the merger was approved by

the board, a superior proposal was presented by Omnicare, Inc. The

NCS board then reversed course and rec ommended that NCS shareholders vote against the Genesis merger. The NCS board’s change of course had no practical effect beca use the three deal-protection mechani sms guar

anteed t hat the tr ansacti on propos ed by

Genesis would obtai

n NCS stockholder’s approval. Omnicare , 818 A.2d at 918. In Omnicare , a majority of the Supreme Court of Delaware found that the NCS board’s reasonable grounds for believing there was a danger to cor porate policy a

nd effectiveness were the possibility of losing the Genesis off er and being left with no comparable a lternative transaction. Omnicare , 818 A.2d at 935. Ne

verthel ess, the majority

held that the deal-protection devices were coercive a

nd preclusive because they accomplished a fait accompl i , where they made it “mathemati cally

impossible ” and “r

ealistic ally

unattainable” f

or any other pr oposal to succeed, no matter how superior the proposal. Omnicare , 818 A.2d at 936. The Unocal inquiry ended there, but the Omnicare majority held “al ternatively

” that the NCS board

was req uired to negotiate a fiduciary

out clause into the merger agr eement because the voting ag reement and the "section 251(c) provision," in the absence of a fiduciary

out clause, resulted in an absolute lockup1-05-3849

21

of the Ge nesis tra nsaction . The cou

rt reasoned that e

ven thoug h a major ity o f share

holders, under the voting a greement, had a

greed to support

the merg er, the N CS board w as contin ually obligated to “exercise its continuing fiduciary responsibilities to the minority stockholders.” Omnicare , 818 A.2d at 939. Plaintiff s’ arg ument tha t the term ination fe es were

coerci ve and tha

t Omnicare applies in this case is misplaced. Even assuming that the Unocal standard applies, the Board retained a “fiduciary out,” where it could have considered any superior proposals that were presented and recommend against the merge r with J.P. Morgan. In addition, the termination fees we re reciprocal and the shareholders in this case could have rejected the merg er proposal on its merits. Unlike Omnicare , there was no agreement a mong shareholders and nothing in the merg er agreement made it “mathematically certain” that the transaction would be approved. I f the Bank One shar eholder s in this ca se belie ved that t he 14% pr

emium for

their sha res was i nsuffic ient, they could have

voted against the merger. While the merg er agreement provided that if the shareholders failed to approve the merg er, Bank One would owe J.P. Morgan one-third of the termination fee, the remaining two-thirds of the termination fe e would only become due if Bank One entered into an agree ment or completed an acquisition within 18 months of the termination of the merger agr

eement. Although it is possible that paying one-third of the termination fee might have influenced the Bank One shareholders’ vote, the fee did not impermissibly coerce the shareholders in the exercise of their voting rig hts. In addition, the termination fee provisions were similar to those found permissible by the Delaware Supreme Court in Brazen v. Bell Atlantic Corp. , 695 A.2d 43 (Del. 1997). In Brazen ,1-05-3849

22

the court applied the test for stockholder coercion that it had enunc iated in Williams v. Geier , 671 A.2d 1368 (Del. 1996). A stockholder vote may be nullified by wrong ful coercion “‘ where the boar d or some o ther par

ty ta kes acti ons which

have the effec t of caus ing the s tockholde rs to vote in favor of the proposed transaction for some re ason other than the merits of that transaction.’” Brazen , 695 A .2d at 50, qu otin g Williams , 671 A.2d at 1382-8 3. The co

urt also concluded that “‘the determination of whether a particular stockholder vote has been robbed of its effectiveness by

impermissible coercion depends on the facts of the case .’” Brazen , 695 A.2d at 50, quot ing Williams , 671 A.2d at 1383. In Brazen , the court upheld the validity of r eciprocal termination fee provisions under which eit her cor poration involved i

n a merg er agr

eement c ould conc eivably pay the other up to $550 million

if the mer

ger wa s termina

ted. The court de termined that the te

rmination penalty amount was small in relation to size of corporation (2% of corporation's mar ket capitalization); the termination fees were clearly disclosed to shareholders; and there was no showing that the shareholders’ vote was based on any thing other than merits of transaction. The court held that the fact that stockholders knew that voting to disapprove the merger may r esult in activation of the termi nation fe e does no t by

itself constitute st

ockholde r coerc ion; and th at no authority existed to support the plaintiff's proposition that a fee is coercive because it can be triggered upon stockhold er disap proval of the merg er agr

eement, but not upon

the occu rrence of other events resulting in termination of the agreement. The court also found that the deal protection mechanisms were reasonable wher e they we re “an integral part of the me rits of the transaction.” Brazen , 695 A.2d at 50. The court concluded that “although the te rmination fee provision may1-05-3849

23

have inf luenced the stock holder vo te, ther

e were 'no stru cturally or situati onally

coerci ve fact ors' that made an otherwise valid fee provision impermissibly coercive" under the fac

ts presented. Brazen , 695 A . 2d at 50, qu otin g Brazen v. Bell Atlantic Corp. , Del. Ch., C.A. No. 14 976, slip op. at 14 (March 19, 1997). Similarly, the fact that Ba nk One shareholders knew that voting to disapprove the me rger would re sult in act

ivating a portion of the te rmination fees doe s not const

itute coe rcion in th

is case. The termination fees were c learly disclosed to shar eholders and the reciprocal termination fees, drafted to protect both Bank One and J.P. Morgan in the event that the merger was not consummated, appear to have been “a n integral part of the transaction.” F urther, nothing in the present record sugge sts that the termination fee provisions had the effect of causing Bank One shareholders to vote in favor of the proposed merg er based on any thing other than the merits. Accordingly , we find that the termination fee provisions were not impermissibly coercive and the a rgumen t that Omnicare applies in this case is misplaced.

III. Conclusion For the above stated reasons, we af firm the determination of the circuit court of Cook Co un ty. Affirmed. CAMPBELL

and MURPHY, JJ.,, concur.