Last week the Delaware Court of Chancery heard arguments in the litigation involving the Bank of America and Merrill Lynch merger.

The Courtroom View Network  has made available a free video/audio clip here of that hearing, which they provide with the following introductory background description of the matter:

Hearing on defendant’s motion to dismiss. Shareholders asserted breach of fiduciary duty and waste claims against Bank of America for consummating a merger with Merrill Lynch and for failing to disclose material financial information before shareholders voted on the merger.

The defendants asserted that the plaintiffs could not prevail without alleging bad faith because Merrill Lynch’s accelerating deterioration, and the directors’ considering invoking the Material Adverse Change (MAC) clause to void the deal, did not occur until after the shareholder vote, at which time disclosure would have had no effect. The defendant also asserted that the undisclosed $5.8B in negotiated bonuses was in line with reasonable shareholder expectations. According to the defendant, there was no credible allegation that the directors acted in their own self interest, and instead had credible, sound reasons for not exercising the MAC, even if the directors were also threatened with job loss if they declared a MAC.

The plaintiff alleged that the board had set up an information system that would have kept it informed of the $9B loss before the vote, and did in fact resolve to declare a MAC three weeks after the vote. Director knowledge of the $5.8B bonus provision could be inferred, according to the plaintiff, because 12% of the total deal, although only noted in a schedule, was so significant that it must have been considered by the Board.

The Court denied the motion. The plaintiff alleged that at the time the board recommended that shareholders approve the deal, there were senior people at the corporation discussing with outside counsel whether they should consider getting out of the deal. Further, the job threat to the board followed by the decision not to declare the MAC constituted facts pled from which an inference could reasonably be drawn that the directors and CEO put personal interests ahead of the interests of the shareholders, even though other inferences favorable to the defendants could also be drawn.