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Mergers & Acquisitions (9 Nov 2012)

98. Georgia Pacific Corp vs Great Northern Nekoosa Corp 8 Feb 1990 Carter | JA FACTS: 1! "n #1 "ct 1989$ %reat &aci'ic co((ence) its atte(*t to ta+e over %reat Nort,ern Ne+oosa Cor* b- a cas, ten)er o''er! .t see+s to oust %reat Nort,ern/s 0oar) o' 1irectors$ 2,ic, ,as t2ice o**ose) t,e ta+eover$ on a (eeting s*ecia33- ca33e) 'or t,at *ur*ose on 2 Mar 1990! 2! .n Ma- 1984$ %reat Nort,ern a(en)e) its artic3es o' incor*oration to inc3u)e t,e 'o33o2ing$ so5ca33e) su*er(a6orit- *rovision 'or re(ova3 o' )irectors7 8ub6ect to t,e rig,ts o' t,e ,o3)ers o' an- series o' *re'erre) stoc+ t,en outstan)ing$ an- )irector$ or t,e entire 0oar) o' 1irectors$ (abe re(ove) 'ro( o''ice at an- ti(e$ but only by the affir ative vote of the hol!ers of at least "#$ of the voting po%er of all the shares o' t,e Cor*oration entit3e) to vote genera33- in t,e e3ection o' )irectors$ voting toget,er as a sing3e c3ass! an) a3so inc3u)e sections *rovi)ing t,at an- vacancies in t,e 0oar) o' 1irectors 9s,a33 only be fille! by a a&ority vote of the !irectors then in office t,oug, 3ess t,an a quoru(!9 #! %eorgia &aci'ic 'i3e) t,is )ec3arator- re3ie' case arguing t,at t,e a(en)(ents con'3ict 2it, section :0:(2) an) (;) o' t,e Maine 0usiness Cor*oration Act (M0CA)! <,e M0CA s*eci'ica33- *rovi)es 'or re(ova3 o' )irectors in section :0: (2)7 1! At a s*ecia3 (eeting o' s,are,o3)ers ca33e) e=*ress3- 'or t,at *ur*ose$ t,e entire boar) o' )irectors or an- in)ivi)ua3 )irectors (abe re(ove)$ 2it, or 2it,out cause$ b- a vote o' t,e s,are,o3)ers as *rovi)e) in t,is section! 2! 8ub6ect to t,e 3i(itation in subsection 4$ i' t,e cor*oration )oes not ,ave a boar) o' )irectors so c3assi'ie) t,at )i''erent c3asses o' s,ares e3ect )i''erent )irectors$ suc, re(ova3 (a- be acco(*3is,e) b- t,e a''ir(ative vote of '() of the o*tstan!ing shares entit3e) to vote 'or )irectors! <,e artic3es o' incor*oration (a- *rovi)e t,at suc, re(ova3 (a- be acco(*3is,e) b- a 3esser vote$ but in no case b- a vote o' 3ess t,an a (a6orit- o' s,ares voting on t,e *ro*ose) re(ova3! An) to cover vacancies in t,e boar) o' )irectors7 M0CA sec! :0>(1)(b)7 ?n3ess t,e artic3es o' incor*oration or t,e b-3a2s reserve to t,e s,are,o3)ers t,e rig,t to 'i33 vacancies$ anot,er vacanc-$ ,o2ever occurring$ in t,e boar) o' )irectors (a- be 'i33e) b- a (a6orit- o' t,e re(aining )irectors or b- a so3e re(aining )irector! M0CA sec! :0:(;)7 .' an- or a33 )irectors are re(ove) at suc, (eeting o' t,e s,are,o3)ers$ ne2 )irectors (a- be e3ecte) at t,e sa(e (eeting 2it,out e=*ress notice being given o' suc, e3ection 4! %eorgia5&aci'ic conten)s t,at t,e re(ova3 *rovisions in %reat Nort,ern@s artic3es o' incor*oration an) b-3a2s are voi) because$ in requiring a :;A (a6orit- to re(ove )irectors rat,er t,an t,e t2o5t,ir)s (a6orit- set 'ort, in B :0:$ t,e- con'3ict 2it, t,e M0CA! <,e M0CA (a+es c3ear t,at t,e b-3a2s an) a(en)(ents to artic3es o' incor*oration (a- not be inconsistent 2it, t,e M0CA or ot,er 3a2! a! %reat Nort,ern argues t,at section :0: )oes not estab3is, a (an)ator- cei3ing 'or t,e (a6orit- require) to unseat )irectors because it no2,ere *ro,ibits Maine cor*orations 'ro( a)o*ting a ,ig,er stan)ar)! +SS,-: Are t,e a(en)(ents va3i)C .-/0: No! 0-C+S+1N: %rante)! Duestione) *rovisions )ec3are) inva3i)! .-/0: 1! <,e *3ain 3anguage o' section :0:(2) requires a 2E# (a6orit- vote 'or re(ova3 o' cor*orate )irectors! <,e Maine a2 Court ,as inter*rete) t,e 3anguage o' section :0: as 9e=*ress3- 3i(iting t,e (eans avai3ab3e to re(ove o''icers an) )irectors!9 2! %reat Nort,ern@s argu(ent t,at section >11 o' t,e M0CA e=*ress3*er(its cor*orations to ignore t,e t2o5t,ir)s (a6orit- require(ent in section :0: is un*ersuasive! 8ection >11 *rovi)es7 1! F=ce*t to t,e e=tent t,at t,e vote o' a greater nu(ber o' s,ares or voting b- c3asses or series o' s,ares is require) b- t,is Act or b- t,e artic3es or b-3a2s$ at an- (eeting o' s,are,o3)ers 2,ic, ,as been )u3- ca33e)$ or notice an) ca33 o' 2,ic, ,as been unani(ous32aive)$ an) at 2,ic, a quoru( is *resent7 A! An- cor*orate action s,a33 be aut,oriGe) b- a (a6orit- o' t,e votes cast at t,e (eeting b- t,e ,o3)ers o' s,ares entit3e) to vote on t,e sub6ect (atterH

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Mergers & Acquisitions (9 Nov 2012)


2! <,e articles or byla%s ay re2*ire a vote greater than a a&ority$ (a- require a unani(ous vote$ an) (a- s*eci'- t,at t,e sti*u3ate) *ercentage s,a33 be )eter(ine) 2it, re'erence to t,e tota3 s,ares entit3e) to vote$ eit,er as to s*eci'ic issues or as to a33 issues 2,ic, (a- co(e be'ore t,e s,are,o3)ers! #! 8ection >11 estab3is,es t,at a (a6orit- vote 2i33 aut,oriGe an- cor*orate action$ 9JeK=ce*t to t,e e=tent t,at t,e vote o' a greater nu(ber o' s,ares !!! is require) b- t,is Act or b- t,e artic3es or b-3a2s!!!!9 .t is c3ear to t,e Court t,at in 'ra(ing section >11$ t,e )ra'ters (eant to )e'er to section :0: an) ot,er sections 3i+e it 2,ic, s*eci'- increase) voting require(ents 'or certain cor*orate acts! 4! <,e genera3 ru3e state) in section >11 re'erring to voting require(ents set 'ort, in t,e Act or t,e artic3es$ cannot be rea) as *rovi)ing 3icense 'or cor*orations to b-*ass t,e Act@s s*eci'ic *rovisions 2,en )ra'ting t,eir artic3es o' incor*oration an) b-3a2s! <,e 'act t,at t,e artic3es or b-3a2s (a- so(eti(es require a vote greater t,an a (a6orit- )oes not$ 2,en bot, t,e artic3es an) t,e Act set voting require(ents$ estab3is, t,e re3ations,i* bet2een suc, *rovisions! ;! 8*eci'ic statutor- *rovisions ta+e *rece)ence over genera3 ones! Section 344 provi!es the general voting re2*ire ents for corporate acts5 b*t section "6" specifically a!!resses the voting re2*ire ents for re oval of !irectors. Therefore5 section 344 *st yiel! to section "6" in circ* stances !ealing %ith the re oval of !irectors. Provisions on Filling of Vacancy 1! F3ection o' ne2 )irectors in cases o' re(ova3 b- t,e s,are,o3)ers is governe) b- section :0:(;)! .t *er(its t,e s,are,o3)ers to e3ect ne2 )irectors at t,e (eeting! 2! <,e *rovision in %reat Nort,ern@s artic3es an) b-3a2s (an)ating t,at vacancies in t,e boar) o' )irectors resu3ting 'ro( re(ova3 'ro( o''ice be 'i33e) b- a (a6orit- vote o' t,e )irectors t,en in o''ice is *3ain3inconsistent 2it, t,e section :0:(;)! #! ?n3i+e section :0>(1)(0)$ section :0:(;) )oes not state t,at a contrar*rovision in t,e artic3es o' incor*oration or b-3a2s 2i33 contro3! <,ere'ore$ t,e vacanc-5'i33ing *rovisions o' %reat Nort,ern@s artic3es o' incor*oration an) b-3a2s are voi) to t,e e=tent t,at t,e- atte(*t to (an)ate an e3ection *roce)ure in cases o' re(ova3! 4! 8ection :0:(;) o' t,e M0CA e=*ress3- *er(its t,e e3ection o' ne2 )irectors at a s,are,o3)ers@ (eeting 2it,out *rior notice$ 2,en t,e e3ection is occasione) b- t,e re(ova3 o' )irectors at t,e sa(e s,are,o3)ers@ (eeting! <o t,e e=tent t,at Artic3e ..$ 8ection 9 o' %reat Nort,ern@s 0-5 a2s atte(*ts to i(*ose a 905)a- notice require(ent 'or no(ination o' )irector can)i)ates a'ter re(ova3 o' t,e )irectors at a (eeting o' t,e s,are,o3)ers$ it$ too$ is inconsistent 2it, t,e Act an)$ t,ere'ore$ voi)! 99. Stahl v. Apple 7ancorp. +nc. #"9 A. '! 444#

Facts7 1! 8ta,3 ,o3)s #0A o' t,e outstan)ing co((on stoc+ o' A**3e 0ancor*! Le announce) a *ub3ic ten)er o''er 'or a33 o' t,e re(aining s,ares o' 0ancor*! 2! <,e boar) o' )irectors e=*resse) concern t,at 8ta,3 (ig,t obtain contro3 o' te co(*an- 2it,out *a-ing a contro3 *re(iu(! #! <,e boar) re'use) to acce*t a stoc+ *urc,ase rig,ts *3an on be,a3' o' 8ta,3! 4! .n res*onse$ 8ta,3$ )e3ivere) a *ro*osa3 to be sub(itte) to a vote at t,e ne=t annua3 (eeting o' stoc+,o3)ers$ ca33ing 'or an a(en)(ent o' t,e b-3a2s to increase t,e nu(ber o' )irectors 'ro( 12 to 21! 8uc, a(en)(ent 2as to inc3u)e ,i(se3' as )irector! ;! <,e boar) c,ose not to convene on t,e regu3ar annua3 (eeting as set in t,e b-3a2s )ue to t,e 'act t,at t,e co(*an)i) not ,ave a 'air o**ortunit- to e=*3ore an) *ursue a3ternatives to t,e 8ta,3 o''er! >! 8ta,3 argues t,at t,at t,e boar)/s action o' c,oosing not to ,o3) t,e (eeting a(ounte) to an i(*er(issib3e (ani*u3ation o' t,e cor*orate (ac,iner- ,aving in e''ect )isen'ranc,ise) t,e co(*an- stoc+,o3)ers an) entrenc,e) t,e incu(bent )irectors! :! <,e boar) res*on) t,at t,e recor) )ate 2as 2it,)ra2n not as a res*onse to a *ro=- contest b- 8ta3,$ but rat,er as a res*onse to 8ta,3s/ ten)er o''er! <,e a**ro*riate stan)ar) 'or eva3uating t,e boar)/s action is 2,et,er t,e boar)s/ 2it,)ra2a3 o' t,e (eeting 2as a reasonab3e res*onse to a *erceive) t,reat to cor*orate or s,are,o3)er interests! 2

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Mergers & Acquisitions (9 Nov 2012) .ssue7 1i) t,e boar) act res*onsib3- in )e'erring t,e boar) (eeting$ regar)ing t,e *ro*ose) a(en)(ent o' t,e b- 3a2s$ 'or t,e *ur*ose o' e=ten)ing t,eir ti(e necessar- to eva3uate t,e 'inancia3 an) business re*ercussions o' it being contro33e) co(*3ete3- b- 8ta,3C Le3)7 1! Mes! <,e genera3 ru3e is t,at 2,ere cor*orate )irectors e=ercise t,eir 3ega3 *o2ers 'or an inequitab3e *ur*ose t,eir action (a- be rescin)e) or nu33i'ie) b- a court at t,e instance o' an aggrieve) s,are,o3)er! 2! ?n)er t,is test t,e court as+s t,e question 2,et,er t,e )irectors@ *ur*ose is 9inequitab3e!9 An inequitab3e *ur*ose is not necessari3- s-non-(ous 2it, a )is,onest (otive! #! Action )esigne) *rinci*a33- to inter'ere 2it, t,e e''ectiveness o' a vote inevitab3- invo3ves a con'3ict bet2een t,e boar) an) a s,are,o3)er (a6orit-! Ju)icia3 revie2 o' suc, action invo3ves a )eter(ination o' t,e 3ega3 an) equitab3e ob3igations o' an agent to2ar)s ,is *rinci*a3! 4! ?noca3 <est7 )i) t,e )irectors reasonab3- *erceive a t,reat to a va3i) cor*orate or s,are,o3)er interest 2,en t,e- (a)e t,e )ecision un)er revie2$ an) is t,e boar)@s res*onse a reasonab3e one in re3ation to t,at t,reat! ;! 0ot, requisites e=ist in t,e 'acts! >! N,ere t,e s,are,o3)ers are in e''ect to be as+e) to )eci)e 2,et,er t,e co(*an- s,ou3) be so3) in a given transaction$ t,e boar) (a- *ro*er3- recogniGe t,e s,are,o3)ers nee) 'or in'or(ation$ ot,er t,an t,e (ar+et *rices o' t,eir stoc+$ re3evant to t,at )ecision! :! <,e essence o' t,e Unocal 'or( o' revie2 is a 6u)icia3 assess(ent o' t,e *ro*ortiona3it- o' a res*onse to a t,reat! Lere t,e res*onse to t,e t,reat 2as e=tre(e3- (i3)! 8! <,e )isaggregate) s,are,o3)ers are inca*ab3e o' obtaining a**ro*riate in'or(ation on a3ternatives ot,er t,an t,e Stahl *ro*osa3 an) t,e (ar+et 'or t,eir stoc+H on3- t,e boar) can acco(*3is, t,at tas+! <,us$ t,e absence o' re3evant in'or(ation$ in (- o*inion$ (a- reasonab3- be seen as *osing a t,reat to t,e vote o' t,e 7ancorps,are,o3)ers in t,e *articu3ar conte=t *resente)! I Lex Societas

466. 8oran v. .o*sehol! +nternational5 +nc. #66 A. '! 4)93 8,ar 464. 0yna ics Corp. of A erica v. CTS Corp. 86# F. '! "6# :4983; <i'' 46'. 8instar Ac2*iring Corp. v. A8F5 +nc. 3'4 F. S*pp. 4'#' :498#; A3)ric, (C) 46). The 7ank of Ne% <ork v. +rving 7ank Corp. #'8 N.<.S.'! 98' :4988; Facts: .0C an) 0NM are bot, ban+ ,o3)ing co(*anies incor*orate) in t,e 8tate o' Ne2 Mor+! .n 8e*te(ber 198:$ 0NM announce) its intention to acquire .0C! At t,at ti(e$ 0NM (a)e an o''er to t,e 0oar) o' 1irectors o' .0C to acquire a33 o' t,e outstan)ing s,ares o' .0C$ 2,ic, o''er 2as re6ecte)! o "ver t,e 'o33o2ing (ont,s$ t,e *ro*ose) acquisition )eve3o*e) into a conteste) ta+eover o''er$ t,e 0oar) o' .0C ,aving not a**rove) t,e initia3 o''er$ nor an- subsequent 0NM o''er! o <o t,e contrar-$ .0C ,as conteste) virtua33- ever- action ta+en b- 0NM in connection 2it, t,is (atter! As a resu3t$ severa3 3a2suits are *en)ing be'ore t,is court invo3ving t,e t2o co(*anies an)Eor t,eir s,are,o3)ers! 0NM@s *3an o' acquisition is basica33- a t2o5ste* *rocess7 (1) First$ 0NM see+s to acquire a33 or a (a6orit- o' t,e outstan)ing s,ares o' .0CH an) (2) t,erea'ter$ 0NM ,o*es to consu((ate a (erger bet2een .0C an) eit,er 0NM or an a''i3iate o' 0NM! o <,e acquisition o' .0C@s s,ares 2ou3) be in e=c,ange 'or cas, an) s,ares o' 0NM! <,at is$ 0NM 2ou3) *a- a certain a(ount o' cas, *3us bet2een 1 an) 2 0NM s,ares 'or eac, .0C s,are acquire)! An obstac3e 2,ic, (ig,t *revent or )e3a- t,e subsequent (erger even s,ou3) 0NM success'u33- ac,ieve acquisition o' a (a6orit- o' t,e s,ares o' .0C is *ose) b- 0usiness Cor*oration a2 8ec! 912! o 0usiness Cor*oration a2 8ec! 912 2ou3) *revent a (erger

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Mergers & Acquisitions (9 Nov 2012)


o' .0C 2it, 0NM$ or an a''i3iate t,ereo'$ 'or 'ive -ears a'ter t,e )ate o' acquisition$ un3ess t,e .0C 0oar) a**roves suc, (erger *rior to t,e acquisition )ate! <o )ate$ .0C@s 0oar) ,as consistent3- re'use) suc, a**rova3! o Furt,er(ore$ (erging t2o giant ban+s is no eas- tas+! <,e (erger (a- 2e33 ta+e so(e ti(e$ a'ter a33 a**rova3s ,ave been obtaine) (i' t,e- ever are)! 0NM ,as in)icate) t,at it (a- 2e33 o*erate .0C as a subsi)iar-$ 'or t,is reason$ 'or so(e *erio) o' ti(e$ a'ter t,e s,ares o' stoc+ it see+s ,ave been acquire)! .0C broug,t t,is action as a s,are,o3)er o' 0NM! .t soug,t a )ec3aration t,at 0NM@s *3an o' acquisition constitutes a (erger$ 2it,in t,e (eaning o' 0usiness Cor*oration a2 8ec! 90#$ an) t,us require) a vote o' t2o t,ir)s o' 0NM@s s,are,o3)ers to a**rove t,e transaction! o A3t,oug, t,e 'or( o' t,e *3an o' acquisition is not one o' (erger$ t,e substance 2as t,at o' a (erger$ an) t,at t,e court s,ou3) a**3- t,e 9)e 'acto (erger )octrine9$ an) treat t,e acquisition *3an as a (erger! 0NM )is*ute) t,e e=istence o' t,e )e 'acto (erger )octrine in Ne2 Mor+$ an) 'urt,er(ore c3ai(e) t,at even 2,ere t,e )octrine 2as recogniGe)$ it 2ou3) not be a**3icab3e in t,ese circu(stances! o 0NM (oves 'or )is(issa3 on t,e groun) t,at it ,as *ro*er3co(*3ie) 2it, t,e 0usiness Cor*oration a2 *rovision 2,ic, *er(its its 0oar) to issue co((on s,ares 'or 9suc, consi)eration$ not 3ess t,an t,e *ar va3ue t,ereo'$ as is 'i=e) 'ro( ti(e to ti(e b- t,e boar)!9 (0usiness Cor*oration a2 8ec! ;04(c))! o 0NM c3ai(s an- e=c,ange o' its s,ares 'or .0C s,ares 2ou3) be va3i)! Furt,er(ore$ it c3ai(s t,at it a3rea)- ,as s,are,o3)er aut,orit- to issue t,e s,ares$ since t,e certi'icate o' incor*oration aut,oriGes t,e issuance o' 12;$000$000 s,ares$ o' 2,ic, 3ess t,an 40$000$000 ,ave been issue)! .ssuance o' t,e *ro*ose) #1$000$000 s,ares in t,e e=c,ange o''er$ a33eges 0NM$ ,as a3rea)- been$ in accor)ance 2it, statutor- require(ents$ a**rove) b- t,e s,are,o3)ers o' 0NM! (0usiness Cor*oration a2 8ec! 801)! o <,e s,are,o3)ers o' 0NM ,ave not a**rove) an- (erger o' .0C into 0NM$ or ot,er *ro*ose) (erger$ b- t2o5t,ir)s vote! <,e- )i) a**rove a cor*orate reso3ution aut,oriGing t,e *3anne) acquisition (2,ic, *ro*osa3 2as sub(itte) to t,e( *ursuant to t,e Ou3e o' t,e Ne2 Mor+ 8toc+ F=c,ange)$ but b- 3ess t,an a t2o5t,ir)s vote! .el!: <,e Ne2 Mor+ 0usiness Cor*oration a2 a''or)s certain rig,ts to cor*orate s,are,o3)ers 2,en a (erger o' t,eir cor*oration 2it, anot,er cor*oration is *ro*ose)! 0usiness Cor*oration a2 8ec! 90#(a)(2) requires a vote o' a**rova3 b- t2o t,ir)s o' a33 o' t,e outstan)ing s,ares entit3e) to vote t,ereon$ be'ore t,e (erger can be e''ecte)! 0usiness Cor*oration a2 8ec! 910 a''or)s s,are,o3)ers t,e rig,t to receive *a-(ent 'or t,eir s,ares u*on (erger or conso3i)ation i' an- s,are,o3)ers so c,oose! <,e )e 'acto (erger )octrine ,as been use) b- so(e courts o' equit- to *reserve s,are,o3)ers@ rig,ts 2,ere t,e transaction invo3ve)$ a3t,oug, not a c3assic (erger$ is$ in essence$ a (erger! <,e courts 2i33 3oo+ t,roug, t,e 'or( o' t,e transaction to its substance! o A (erger is )e'ine) as a transaction 3ea)ing to t,e 'or(ation o' a sing3e surviving cor*oration! <,e 'act t,at t,e cor*oration 2,ose s,ares are acquire) continues to e=ist (eans t,at t,ere is no require(ent 'or s,are,o3)er a**rova3 un)er 0usiness Cor*oration a2 8ec! 90#(a)(2)! F''ective3-$ sai) case state) t,at in circu(stances si(i3ar to t,e instant case t,e )e 'acto (erger )octrine 2i33 not be a**3ie)! <,e )e 'acto (erger )octrine ,as been a**3ie) in t,is 8tate (NM)$ but on32,ere it is a**arent t,at t,e acquire) cor*oration 2as quic+3- to be )isso3ve)! A trans'er o' assets 'ro( one cor*oration to anot,er$ an) t,e subsequent )isso3ution o' t,e 'or(er cor*oration$ constitute) a )e 'acto (erger! .n %i3bert v 0urnsi)e (19: N!M!8!2) >2#$ rev) 1# A!1!2) 982 J2) 1e*t 19>1K$ a'') 11 N!M!2) 9>0)$ t,e court ,e3) a 9reorganiGation agree(ent9 to be a )e 'acto (erger 2,ere t,e agree(ent *rovi)e) 'or t,e sa3e o' a33 o' t,e assets o' a cor*oration an) its subsequent )isso3ution! .n bot, cases$ t,e court 'oun) t,at t,e )isso3ution o' t,e acquire) cor*oration 2as an i((inent3e=*ecte) occurrence! <,ere ,ave been )ecisions in ot,er 6uris)ictions 'in)ing )e 'acto (ergers in situations si(i3ar to t,ose above! (8ee$ e!g!$ A**3estein v ?nite) 0)! & Carton Cor*!$ >0 NJ 8u*er ###$ 1;9 A2) 14>$ a'') ## NJ :2$ 1>1 A2) 4:4 J2,ere t,e agree(ent *rovi)e) 'or a sa3e o' assets$ t,e )isso3ution o' t,e se33er an) 'or t,e acquirer to assu(e a33 t,e )ebts o' t,e acquire) cor*oration$ a )e 'acto (erger e=iste)KH Oat, v Oat, &ac+ing Co!$ 2;: .o2a 12::$ 1#> NN2) 410 J9&3an o' OeorganiGation9 agree(ent ,e3) )e 'acto (erger 2,ere agree(ent *rovi)e) 'or sa3e o' a33 assets$ assu(*tion o' a33 )ebts an) 3iabi3ities$

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Mergers & Acquisitions (9 Nov 2012)


cessation o' business o' acquire) cor*oration un)er its na(eH an) acquiring co(*an- to c,ange na(e to 9Oat,5Nee),a(9KH Farris v A3)en Cor*!$ #9# &a 42:$ 14# A2) 2; J9OeorganiGation Agree(ent9 ,e3) )e 'acto (erger$ 2,ere agree(ent *rovi)e) 'or acquirer to i((e)iate3- acquire a33 t,e assets o' t,e targetH acquirer to assu(e a33 o' target@s 3iabi3itiesH target is to be )isso3ve)K!) o A stu)- o' t,ose cases in 2,ic, courts ,ave 'oun) )e 'acto (erger )e(onstrates t,at t,e 'actua3 situation o' eac, case (ust be in)e*en)ent3- stu)ie)$ 2it,out 9s3avis, a),erence to )eter(inations (a)e in ot,er cases$ 2,ere t,ere are si(i3arities an) a3so )egrees o' )i''erence!9 (A**3estein v ?nite) 0)! & Carton Cor*!$ su*ra$ >0 NJ 8u*er$ at #;1$ 1;9 A2)$ at 1;>!) 8*eci'ica33- 3ac+ing in t,e instant case is t,e i((e)iate )isso3ution or cessation o' t,e business o' t,e target cor*oration as 2e33 as an assu(*tion o' a33 )ebts an) ob3igations! Ne note 'urt,er t,at 0NM is *3anning a *urc,ase o' t,e stoc+$ not t,e assets o' .0C! N,ere t,e acquirer cor*oration *urc,ases a33 t,e target@s assets$ 3eaving t,e target as a (ere s,e33$ t,e transaction bears a )istinct rese(b3ance to a (erger! o Lere$ .0C 2i33 survive as a cor*orate entit-$ 2it, a33 its assets intact! A3t,oug, a (erger (a- occur in t,e 'uture$ t,e instant transaction is not a (erger$ but t,e acquisition o' a subsi)iar-! <,e *3an o' acquisition si(*3- )oes not contain *rovisions 'or 6oining t,e business a''airs an) assets o' 0NM an) .0C$ as are containe) in t,e *3ans 2,ic, 2ere t,e sub6ect o' t,e actions cite) above 2,ere a )e 'acto (erger 2as 'oun)! <,us$ t,e )octrine o' )e 'acto (erger ,as no a**3ication ,ere! ,nilever Ac2*isition Corp. a ne23-5'or(e) subsi)iar- o' ?ni3ever ?nite) 8tates$ .nc!H "2ns ever 0ros!$ a ,ouse,o3) *ro)ucts co(*an-$ an) <,o(as J! i*ton$ .nc!$ t,e tea an) sou* (anu'acturer!

469. Stahl v. Apple 7ancorp.5 +nc. Fe!. Sec. /. =ep. >9#594' :4996; C,a) Takeover Defenses 46#. ,nilever5 Ac2*isition Corp. ?@s? =ichar!son?@icks5 +nc. :A0iana; 34# F. S*pp. 96" :498#; #0 8e*t 198;H &7 "2en -ntities +nvolve!: =ichar!son?@icks +nc. (a+ers o' Pic+s Pa*orub an) ot,er 2e33 +no2n *ro)uctsH a *ub3ic3-5,e3) 1e3a2are cor*oration$ 2it, 1E# (ore o' its stoc+ contro33e) or ,e3) b- various Oic,ar)sons!

Facts: 1! .n ear3- 8e*t 198;$ ?ni3ever sent a *ro*osa3 to acquire a33 o' Pic+s/ s,ares at Q ;4Es,are but Oic,ar)sons/ boar) o' )irectors re'use)! 2! "n 1> 8e*t$ ?ni3ever )i) t,e '' si(u3taneous3-7 a! Fi3e) a case against Oic,ar)sonsH an) b! &ub3ic3- announce) a ten)er o''er 'or a33 outstan)ing s,ares o' Oic,ar)sons/co((on stoc+$ at a cas, *rice o' Q ;>E s,are i' Pic+s/ boar) o' )irectors a**rove) t,e o''er an) Q 48 i' it )i) not! #! "n 1: 8e*t$ Oic,ar)sons/ boar) o' )irectors vote) an) announce) t,e issuance o' a BSeries A C9.66 Participating C* *lative Convertible Preferre! StockB to be )istribute) as a stoc+ )ivi)en) to co((on stoc+,o3)ers o' recor) as o' 2: 8e*t 198;! J.M&"O<AN<K Terms and Conditions ?n)er t,is$ 1 s,are o' t,e ne2 *re'erre) stoc+ 2i33 be issue) 'or eac, ; s,ares o' co((on stoc+ Fac, *re'erre) s,are 2i33 entit3e t,e ,o3)er to cast 2; votes on a33 issues on 2,ic, t,e co((on can vote! 0?< i' t,e *re'erre) s,are is trans'erre)$ t,e ne2 ,o3)er (ae=ercise on3- ; o' 2; votes 'or t,e 'irst #> (ont,s t,e stoc+ is ,e3)! Effect Fac, co((on stoc+,o3)er 2i33 ,ave t,e sa(e voting *o2er 0?< ,eEs,e 2i33 be unab3e to trans'er t,ose voting rig,ts$ since 2E# 2i33 be une=ercisab3e 'or #> (ont,s 'o33o2ing t,e trans'er! End Effect: +t %ill be i possible for ,nilever to ac2*ire =ichar!son?@icks at this ti e Nit,out t,e consent o' t,e Oic,ar)son s,ares$ Oic,ar)son grou*@s co((an) o' t,e tota3 e=ercisab3e vote 'ro( about 1E# to an abso3ute (a6orit- 'or t,e 'o33o2ing #> (ont,s! 4! ?ni3ever (ove) to te(*orar- restrain t,e issuance o' sai) )ivi)en)! .t 2as %OAN<F1! Ground: .t/s an i33ega3 inter'erence bot, 2it, its rig,t as a stoc+,o3)er an) 2it, its atte(*t to acquire t,e co(*an- un)er 1e3a2are 3a2 8e*te(ber 19! ;! ?ni3ever 3ater a**3ie) 'or *re3i(inar- in6unction to en6oin t,e issuance o' t,e stoc+ )ivi)en) *en)ing tria3! +ss*e: .s it *ro*er 'or t,e Court to issue a *re3i(inar- in6unctionC

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Mergers & Acquisitions (9 Nov 2012)


.el!: Mes! ?ni3ever success'u33- estab3is,e) t,at Oic,ar)son/s action o' issuing ne2 *re'erre) stoc+ )ivi)en)s 2it, con)itions on votes resu3te) to irre*arab3e in6ur0ecision: -Preliminary n!unction Granted=*ling: A. =e2*ire ents for a Preli inary +n&*nction 1! .t (ust be s,o2n t,at t,ere/s an irreparable har an) 2! <,at t,ere/s eit,er likelihoo! of s*ccess on the erits or both s*fficiently serio*s 2*estions going to the erits to (a+e t,e( a 'air groun) 'or 3itigation an) a ba3ance o' ,ar)s,i*s ti**ing )eci)e)3to2ar) t,e *art- requesting t,e *re3i(inar- re3ie'! 7. Dhat the 7oar! of 0irectors Can an! Can N1T 0o 0usiness Ju)g(ent Ou3e ?se 3ega3 (eans to resist t,e o''er7 (1) "it# Good Fait#$ an) (2) %fter reasona&le deli&eration an) finding t#at a tender offer is not in t#e com'any(s &est interest F=ce*tion (Not A33o2e)) .' actions ta+en in &ad fait# or in self-interest )i*e*+ suc, as resisting a ta+e5over so3e3- to entrenc, t,e )irectors@ contro3) .' t,e action7 (1) calculated to alter t#e structure of t#e cor'oration$ an) (2) results in a fundamental transfer of 'o"er from one cor'orate constituency to anot#er J1e3a2are a2K C. Application to the Case (1) Finding: Oic,ar)son 2as .N 0A1 FA.<L ?ni3ever estab3is,e) t,at t,ere/s irre*arab3e in6urin t,e i(*er(issib3e issuance o' t,e *re'erre) stoc+ )ivi)en) because t,is 2i33 severe3- 3i(it i' not e3i(inate its abi3it-$ as a s,are,o3)er inten)ing to acquire a))itiona3 s,ares$ to contro3 an)Eor in'3uence t,e (anage(ent an) 'uture course o' Oic,ar)son5Pic+s! (2) %nalysis: 1e3a2are a2s Voting Po"er: Fac, s,are o' co((on stoc+ is entit3e) to one vote$ un3ess t,e cor*orate certi'icate o' incor*oration *rovi)es ot,er2ise J1e3! %en! Cor*! a2K C#anging Certificate of ncor'oration <o c,ange t,e certi'icate o' incor*oration in (atters a''ecting s,are,o3)er at an annua3 or s*ecia3 (eeting J1e3! %en! Cor*! a2K ssuance of stocks not aut#ori,ed in certificate <,e boar) ,as *o2er to aut,oriGe b- reso3ution$ 2it,out s,are,o3)er a**rova3$ t,e issuance o' ne2 stoc+ not aut,oriGe) in t,e certi'icate o' incor*oration .F7 (a) .t/s e=*3icit3- aut,oriGe) to )o un)er t,e certi'icate o' incor*orationH an) (b) .t 'i3es a certi'icate (eeting certain require(ents 2it, t,e 8ecretar- o' 8tate J1e3! %en! Cor*! a2K -estriction .as /o 0inding Effect on Previously ssued 1#ares No restriction Jon trans'er o' s,aresK s,a33 be bin)ing 2it, res*ect to securities issue) *rior to t,e a)o*tion o' t,e restriction ?N F88 t,e ,o3)ers o' t,e securities are *arties to an agree(ent or vote) in 'avor o' t,e restriction J1e3! %en! Cor*! a2K 1tock#older /ecessary for %n ntegral C#ange in Cor'orate 1tructure A c,ange in cor*orate structure o' t,is (agnitu)e$ re)ucing t,e trans'erabi3it- o' a stoc+,o3)er@s abi3it- to vote an) t,e va3ue o' ,is or ,er asset to t,is )egree$ requires stoc+,o3)er a**rova3 2,ic, ,as not been obtaine) J1e3! %en! Cor*! a2K Lere 0oar) acte) 0FM"N1 its aut,orit-! 5 Oic,ar)son5Pic+s/ certi'icate aut,oriGes t,e boar) to issue *re'erre) stoc+ 2it, t,e ter(s to be set b- t,e boar) 5 0?< it ,as a restriction t,at a33 s,ares o' an- series o' *re'erre) stoc+ ,ave i)entica3 voting rig,ts <,e *ro*ose) )ivi)en) both restricts transferability of =ichar!son?@icks co on stock an! affects its voting rights A'ter t,e issuance o' t,e )ivi)en)$ a co((on stoc+,o3)er 2i33 be unab3e to trans'er 2E# o' ,is voting *o2er <,ere/s going to be !iscri ination a ongst sharehol!ers of preferre! stocks 5 8o(e o' s,are,o3)ers o' t,e sa(e issue o' *re'erre) stoc+ 2i33$ 2,i3e ot,ers 2i33 not$ be ab3e to vote t,e 'u33 nu(ber$ )e*en)ing on t,e circu(stances o' acquisition! 5 .t ,as been ru3e) t,at suc, )iscri(ination is not a33o2e) 2,en t,e '' con)itions are *resent7 .t stri*s t,e s,are,o3)er o' t,e abi3it- to trans'er voting rig,ts 2it,out *rior 2arning$ co(*ensation or s,are,o3)er aut,oriGation$ creating t2o c3asses 2it,in one series o' s,ares (Oecent3- acquire) ones 2it, re)uce) votes$ an) ot,ers 2it, 'u33 votes) 1iscri(ination (a)e in t,e 'ace o' a *rovision o' t,e

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Mergers & Acquisitions (9 Nov 2012)


cor*oration@s certi'icate o' incor*oration e=*3icit3*rovi)ing t,at 9JaK33 s,ares o' an- one series o' *re'erre) stoc+ s,a33 be i)entica3 2it, ot,er in a33 res*ects!9

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VERITAS. VNITAS. VIRTUS.

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