#11685 - Corporate Combinations - Business Association (Duke Cox)

Procedure

1. Alpha pays consideration (Alpha stock) for Beta’s assets per K.

2. Beta dissolves and liquidates.

3. Beta pays a liquidating distribution (a dividend) to its stockholders.

4. Alpha, per K, can choose which assets and liabilities it wants to assume.

Del. Buyer SH: no vote

1. No SH vote required, no 20% rule

2. But NYSE has 20% rule

Del. Seller Board and SH approval:

1. § 271: to sell, lease, or exchange “all or substantially all” of property and assets of a corporation, including goodwill and franchises, a corporation must have

   1. Board approval and

   2. Approval of a majority of the holders of the outstanding stock entitled to vote

MBCA- buyer board approval

1. 8.01(b) All corporate powers shall be exercised by or under the authority of the board of directors of the corporation, and the business and affairs of the corporation shall be managed by or under the direction, and subject to the oversight, of its board

MBCA- buyer SH no vote

1. No buyer’s SH vote required unless shares diluted by more than 20%. § 6.21(f)(1).

MBCA- seller board approval

1. §12.02(b) A disposition that requires approval of the shareholders under subsection (a) shall be initiated by a resolution by the board of directors

MBCA- seller SH

1. MBCA §12.01 No approval of the shareholders of a corporation is required, unless the articles of incorporation otherwise provide: (1) to sell, lease, exchange, or otherwise dispose of any or all of the corporation’s assets in the usual and regular course of business .

2. §12.02(a) A sale, lease, exchange, or other disposition of assets, other than a distribution described in 12.01, requires approval of the corporation’s shareholders if the disposition would leave the corporation without a significant continuing business activity.

   1. If a corporation retains a business activity that represents at least 25% of total assets at the end of the most recently completed fiscal year and 25% of either income from continuing operations before taxes or revenues from continuing operations for that fiscal year, the corporation will be conclusively deemed to have retained a significant continuing business activity.

Merger procedures

1. Alpha creates Shell subsidiary, paying $1 for 1 share of Shell.

2. Beta merges into Shell. This requires vote of Beta SHs and Shell SHs, which are Alpha bd. members.

3. Alpha does a MBCA § 11.05 short form merger of Shell into itself. No Alpha SH vote. Only Alpha board approval needed.

MBCA Target & Acquiring Board approval

1. §11.04 In the case of a domestic corporation that is a party to a merger or share exchange: (a) the plan of merger or share exchange must be adopted by the board of directors.

MBCA Acquiring SH approval

1. Approval required

2. No vote under § 11.04(g) Whale/Minnow, the Acquiring corporation will survive.

3. vote is required under §6.21(f) if diluted more than 20%

4. Look at § 7.25(c) requiring maj. shares of those voting for/against, if quorum exists

MBCA Target SH approval

1. SH vote required

   1. §11.04 In the case of a domestic corporation that is a party to a merger or share exchange (e) approval of the plan of merger or share exchange requires the approval of the shareholders.

   2. (f) Separate voting by voting groups is required: (1) on a plan of merger, by each class or series of shares that: (i) are to be converted under the plan

2. Look at § 7.25(c) requiring maj. shares of those voting for/against, if quorum exists

Del. § 251: Substantially the same as MBCA

1. To approve, need majority of shares entitled to vote

MBCA: Short form governed by § 11.05

1. Can merge a parent and its subsidiary without board or shareholder approval of the subsidiary if the parent owns 90% or more of the subsidiary

2. Only parent board approval needed.

If you don’t like a merger/ substantial sale of assets, you sell your shares or seek an appraisal remedy

Process

1. SH must vote NO

2. Appraisal statutes provide a process for shareholders meeting the statute’s conditions to obtain fair value for their shares

§13.02 Right to Appraisal

1. (a)(1) merger where shareholder vote is required

   1. Only the disappearing company’s SH get appraisal right

   2. SH of T company in short form merger get appraisal right

   3. If you’re selling all assets but not planning to dissolve, there is no plan to cash out the SH so no appraisal right

2. (a)(3) sale of all or substantially all

3. (b) appraisal right limited when

   1. (1) market out exception

      1. if B’s securities listed on exchange no appraisal

      2. if B’s not listed, but you get A’s shares instead, and A’s shares are listed no appraisal

         • because you can use market price so you don’t need appraisal

   2. (3) if you’re going to get a non-traded security or debt no market out, you can get...