Question 2. LML seeks advice on what Lionel and the LML board need to do to ensure that they act in accordance with their duties in deciding whether or not to approve LML's proposed acquisition of CoalCo.

LML's board is divided as to whether it would be advisable to acquire a thermal coal mine. However, the board is unanimous that LML cannot spare $2 million in cash anyway, and accordingly the board resolves not to acquire CoalCo.

After the board meeting, it occurs to Lionel that Betina may be willing to forgo receiving cash if offered a higher price. Lionel puts that to Betina, who agrees to sell CoalCo for the issue of LML shares worth $8 million provided the deal is signed immediately.

Lionel believes that LML's board would wish to accept the revised terms, given they preserve LML's cash and put more shares into Betina's "friendly" hands (making a hostile bid by AE even less likely). The agreement is amended to reflect these terms and is signed by Lionel as "CEO, for and on behalf of" LML, and by Betina (who holds all the issued shares in CoalCo).

When LML's board learns of this all directors are extremely disappointed that Lionel did not seek the board's approval of the agreement and decide to explore whether there is any way to avoid proceeding with the acquisition of CoalCo.