Class Notes

Question 1

o Del Code §251

Answer 1

• § Governs mergers in Delaware
• § Any 2 or more corporations can merge
• § Board must approve
• § §251(f) – no vote of stockholders necessary to authorize merger if…

o Do not exceed 20% of common stock immediately before effective date of merger.

o “fully diluted basis”

§ Pre-dilution Basis = 10 shares

§ Fully diluted basis = 11 shares

§ Means whether or not you get shares before or after you calculate how many shares will be issued to you. 10% of 100 shares = 10… but then 110 shares exist. So 10% of 110 shares = 11 fully diluted.

Question 2

o Del Code §253

Answer 2

§ Whether or not you need board approval.

§ If you have > 90% of outstanding shares, then do not need board approval

Question 3

o Del Code §262

Answer 3

• (2) a – C
• § Valuation doesn’t trigger need for approval; only affecting inherent rights, like voting.
  
  • ú Nature of stock not changing
  • ú Documents changing
  • ú More than 20% shares

Question 4

What do you need to know from your client before the deal:

Answer 4

• · Their name
  
  • o You must make sure there is no conflict of interest with the company.
• · “How are you going to get the money?”
• · “Are you being sued?”
• · “In trouble with regulators?”
• · Look for liens

Question 5

Valuation Term - Control Premium

Answer 5

§ Situation where somebody is willing to pay, say, $10 per share of stock in a company. But if you’re willing to give them more than 50% of control, they would be willing to pay more than $10/share

Question 6

Valuation Term - Minority Discount

Answer 6

§ So insignificant in control, that you are just along for the ride. So you get a discount.

Question 7

Valuation - Market Discount

Answer 7

§ When there is no active market for the shares

Question 8

Weinberger =

Answer 8

fair dealings and fair price

Question 9

Glassman (under Delaware) =

Answer 9

short form merger doesn’t need mechanics of weinberger

Question 10

Strategy: Get rid of someone with 1% who won’t sell stock:

Answer 10

• · Do a merger with a cash-out
  
  • o New company takes control of target
  • o Merger happens
  • o Cash-out shareholders
    
    • § Must be fair
    • § Based on all relevant factors (not speculation) (weinberger)

Question 11

· If I have 50%, they need my approval to merge –

Answer 11

o 50% allows you to kill a merger, but gives the other shareholder(s) the right of first refusal to buy me out at FMV

Question 12

Important Parts of Drafting

Answer 12

1. Indemnification Clauses
2. Hold-back/defrred
   
   • Buyers want it
   • Sellers hate it; if its delayed, its at risk of not happening
   • Sellers want it up front
3. Survival Clause
   
   • “All the terms in this agreement shall expire on XX, thereafter you can’t look to this agreement for remedy.”
4. Basket Clause
   
   • Nick in the knob
   • Until the amount of daamges gets to a certain amount, you can’t make a claim against the seller
5. Cap
   
   • LImit on liability of seller equal to total purchase price.

Question 13

2 types of Change in Control

Answer 13

ú 1) Change of ownership

· If this happens, we have right to call back loan

ú 2) Change of manager control via the board

· If more than 4 change within X month period, we have a right to call back the loan

Question 14

Term: Standstill

Answer 14

§ In company that is publicly held, and a raider is causing a ruckus, a standstill agreement is where you give seats on the board in exchange for a K that raider will stop acquiring stock.

Question 15

Terms - Tag Along and Take along/Drag Along

Answer 15

• § Tag along
  
  • ú Opposite of the take-along… gets a minority shareholder in on the good deals.
• § Take along / Drag along
  
  • ú When minority shareholder threatens to kill a deal, you have the right to force them to take it.

Question 16

· “Material” adverse change/affect:

Answer 16

o If any of these things happen prior to closing, buyer gets to walk and get damages

Question 17

ú When you sell securities and comply with 1933 act, you have to register securities

Answer 17

· Register shares with SEC, give info about company to be transparent

· SEC critiques it all

· When you’re good, SEC “clears you” and your registration is good

Question 18

Accredited investor…

Answer 18

ú 1 million $ in their networth

ú Minimum income of $200k

ú $300k with spouse

ú if business, $5 MM in income

ú To check if someone is accredited, give them a document that says “tell me, are you an accredited investor”

Question 19

o SEC – Full, Fair & Timely Disclosure of ALL MATERIAL INFORMATION.

Answer 19

§ NOT merits of the security/investment

§ Securities only

§ No opinion on merits, just full disclosure.

§ Public must inform/educate themselves

Question 20

o Securities Exchange Act of 1934 – triggered when:

Answer 20

you have more than 500 shareholders and $10million in assets

Question 21

o Proxy Statements

Answer 21

• § Schedule 14-a
  
  • ú It’s a questionnaire with a bunch of basic questions.
  • ú The detail on how you have to comply with the questions = Reg. SK (SEC)
    
    • · All other documents will refer to questions found inside Reg. SK (common reporting system)

Question 22

o Williams Act – Fixed the problem of

Answer 22

takeovers

Question 23

§ 14d-9

Answer 23

ú board of public company must review tender offer and let shareholders know if it is a good deal

Question 24

o GAF (13d case)

Answer 24

§ If you have 3% and your friend has 2%, that’s fine – but if you work in cahoots with your friend to operate as a single 5% opinion, then you cross the line.

Question 25

o Rondeau

Answer 25

• § Late filing didn’t harm because he eventually did.
• § Shareholders who sold to ∆ during this period of nonreporting have an action against ∆ for violation of 13(d). Likely class action.