Chapter 48 - § 48.6 • REQUIREMENTS FOR INSIDER TRANSACTIONS

• Jurisdiction: Colorado

§ 48.6 • REQUIREMENTS FOR INSIDER TRANSACTIONS

Special care is required where a corporation is involved in an acquisition transaction to which a director — or an entity in which a director has a financial interest — is a party. C.R.S. § 7-108-501 addresses this situation head-on by effectively creating three safe harbors. Under this statute, a shareholder cannot sue to seek damages or stop the transaction if the conditions to any safe harbor are met. Such conditions include (1) the transaction is approved in good faith by a majority of the disinterested directors after disclosure of all material facts (including disclosure of relevant directors' relationships or interests); (2) after disclosure of all material facts, the transaction is approved in good faith by a vote of the shareholders;⁶¹ or (3) the transaction is fair to the corporation.

In the first two safe harbors — approval by the board or shareholders after disclosure of all "material facts" — a shareholder can still challenge the transaction by arguing that not all "material facts" were adequately disclosed or explained prior to the vote. In the third safe harbor, the shareholder may simply argue that the transaction is not "fair" to the corporation. In each case, terminology may end up being the subject of litigation.

Short of forgoing the deal, a corporation and its...