Fundamental Corporate Changes

Question 1

Types of Fundamental Corporate Changes

Answer 1

Include:
- amending the articles
- merging or consolidating into another company
- transferring substantially all assets (or having stock acquired in a “share exchange”)
- converting to another form of business
- dissolving

Question 2

Basic Procedure for Fundamental Corporate Changes

Answer 2

Generally, need:
1) board action adopting resolution of fundamental change
2) board submits proposal to shareholders w/ written notice AND
3) shareholder approval

• for most of these changes, also need to deliver a doc to the secretary of state

Question 3

Fundamental Corporate Changes - Reminder Re Board Power

Answer 3

• b/c such changes = extraordinary, board generally CAN’T do them alone

Question 4

Fundamental Corporate Changes - Shareholder Approval

Answer 4

• shareholder vote required to approve fundamental corp change = majority of shares entitled to vote
• note though that some states are changing -> require only majority of those who actually vote

Question 5

Right of Appraisal - Basic Concept

Answer 5

• happens if corp approves certain fundamental changes BUT there are shareholders who didn’t vote in favor of the change -> they get appraisal rights
• dissenting SH right of appraisal = right of SH to force corp to buy their stock for fair value

Question 6

When does right of appraisal apply?

Answer 6

Only to certain fundamental corporate changes:
- merging or consolidating
- transferring substantially all assets
- stock being acquired in a share exchange
- converting to another form of business

Question 7

Appraisal - Close Corps vs. National

Answer 7

• NO right of appraisal for:
  -> cos w/ stock listed on national exchange (i.e. publicly traded corp.) OR
  -> if co has 2,000 or more SHs (not shares, SHs) + shares involved have value of at least $20 million (exclusive of shares held by senior execs, directors, + SHs owning more than 10% of shares)
• exists in closed corps
• rationale: if dislike change in pub corp, can just sell your stock on public market

Question 8

Perfecting Right of Appraisal

Answer 8

For SH to perfect:
1- if proposed corporate action will create dissenters’ rights, notice of SHs’ meeting at which a vote on the action will be taken must state that the SHs will be entitled to exercise their dissenting rights
2- before SH vote, SH must file w/ corp written notice of objection + intent to demand payment
3- at vote, SH must abstain or vote against
4- if action approved, corp must notify (w/in 10 days) all SHs who filed intent to demand payment
5- notice must include time + place to submit shares + other terms of repurchase (must include time + place to submit shares + other terms of repurchase)
6- w/in t set by corp, SH must make written demand to be bought out + deposit stock w/ the corp AND
7- corp must pay dissenters amount corp estimates as fair value of shares, plus accrued interest

Question 9

Right of Appraisal - Determinations of Value of Shares

Answer 9

• if SH dissatisfied w/ corp’s determ of $, SH has 30 days to send corp own estimate of value + demand payment of that amount
• if SH + corp can’t agree on fair value of shares, corp must file action in court w/in 60 days of receiving SH’s demand, requesting ct to determine $, + ct may appoint appraiser
• if corp doesn’t so file, corp must pay what SH demanded

Question 10

Exclusive Remedy for Disliking Fundamental Change

Answer 10

• right of appraisal -> if SH doesn’t like a fundamental change, absent fraud, this right is the exclusive remedy

Question 11

Amendments to Articles of Incorporation

Answer 11

• corp can amend articles by following the procedure discussed above
• most require SH approval (except “housekeeping” ams)
• if approved, amended articles must be delivered to sec of state
• SHs generally don’t have dissenting rights of appraisal for these ams

Question 12

Merger - Definition

Answer 12

• involves blending of one or more corps into another corp -> latter corp survives while merging corp ceases to exist

Question 13

Consolidation - Basic Concept

Answer 13

• involves 2 corps combining to form new entity
  -> seems like neither corp survives -> ex: A and B Corp become C corp

Question 14

Mergers + Consolidations - Basic Process

Answer 14

• for both, board of director action (by both corps) is required, as well as notice to SHs + SH approval (generally by both corps)
• if approved, surviving copr must deliver articles of merger or consolidation to sec of state

Question 15

Mergers + Corps - Right of Appraisal

Answer 15

• there’s generally a right of appraisal for SHs entitled to vote on the merger or consolidation
  -> also for SHs of the subsidiary in a short form merger

Question 16

Merger - Surviving Corp + No Significant Change

Answer 16

Approval of plan of merger by SHs of surviving corp NOT required if all following conditions exist:
1) articles of inc of surviving corp won’t differ from articles before merger
2) each SH of survivor whose shares were outstanding immediately prior to effective date of merger will hold same # of shares, w/ identical preferences, limitations + rights AND
3) voting power of shares issued as result of merger will comprise no more than 20% of voting power of shares of surviving corp that were outstanding immediately prior to merger

Question 17

Short Form Merger of Subsidiary

Answer 17

• no SH approval required for short form merger
• w/ short form merger, parent corp owning at least 90% of outstanding shares of each class of subsidiary corp may merge subsidiary into itself w/o approval of SHs or directors of subsidiary
• parent must mail cop of plan of merger to each SH of subsidiary

Question 18

Effect of Merger or Consolidation

Answer 18

• surviving corp succeeds to all rights + liabilities of constituents
• successor liability: creditor of constituent corp could sue survivor