Transcript Business associations: Exam preparation

Mergers & Acquisitions
Exam Preparation
Prof. Amitai Aviram
[email protected]
University of Illinois College of Law
Copyright © Amitai Aviram. All Rights Reserved
S15
Administrative details
The exam
• Course deadline: Thursday, April 30, 5pm
• My administrative assistant: Athena Newcomb ([email protected])
• Receiving the exam form
– Exam will be e-mailed to you at 10am at your choice of these three days:
Thursday, May 7
Friday, May 8
Monday, May 11
– You must e-mail my administrative assistant by the course deadline, with your
choice among these three dates
– If you didn’t e-mail your choice by the course deadline, you will receive the
exam on the first day it takes place
• Submitting the exam (time limit)
– Exam responses must be e-mailed to my administrative assistant by 10am on
the day following the day it was e-mailed to you (even if it’s a weekend)
• Exam structure: issue spotter (traditional essay-type law school exam question)
– Word limit: 1,000 words
– Past exams (with model answer) available at: http://www.law.illinois.edu/aviram/Exams.htm
• I will answer student questions (both face-to-face & by e-mail) only until the
course deadline
© Amitai Aviram. All rights reserved.
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Exam instructions
1.
Permissible material: This is an open book exam. You may use any
materials you want, whether in hardcopy or electronic format.
Anonymity: The exams are graded anonymously. Do not put your
name or anything else that may identify you (except for your fourdigit exam ID number) on the file that contains your answer to the
exam.
Receiving and submitting the exam:
2.
3.
a)
b)
3
Notify my assistant immediately (within 1 hour) if you did not receive by email a copy of the exam by 10am on the day you selected (or on the default
date, if you did not select an exam date).
You must submit your response as a .doc/.docx (Microsoft Word) file e-mailed
to my assistant no later than 10am on the day after you received the exam.
The file name should be your 4-digit exam ID number.
© Amitai Aviram. All rights reserved.
Exam instructions
4.
5.
6.
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Confidentiality: Once you receive this exam form, you are not
allowed to discuss the exam with anyone until after the last day of
the exam period. Students enrolled in this course are not allowed to
solicit or receive information about the exam if the source of the
information (directly or indirectly) is a person who has seen the
exam.
Length limit: The total length of your answer may not exceed 1,000
words. For every 10 words in excess of the length limit (rounded
up), one point will be taken off the exam’s raw score.
Answering the exam: Cite relevant case and statutory authority.
Within the constraints of the length limit, answer all relevant issues
that arise from the fact pattern, even if your conclusion on one of
the issues is dispositive to other issues.
© Amitai Aviram. All rights reserved.
Exam instructions
7.
Assumptions: Unless the exam question specifies otherwise,
assume that –
a)
b)
c)
8.
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The relevant jurisdiction applies the Restatement (Third) on Agency, Delaware
corporate law, RUPA, and U.S. securities law.
Each corporation’s charter states that: the corporation is a stock corporation;
it has limited liability & perpetual existence; the corporation may conduct any
lawful act or activity; the board may amend the bylaws; director fiduciary
duties are limited to the maximum degree allowed under DGCL §102(b)(7).
Each corporation’s bylaws state that: the chairperson of the board is
authorized to call a board meeting; and the board is authorized to call both
annual & special shareholder meetings.
“Fact” patterns are fiction: The “facts” presented in this exam were
constructed for an educational purpose, and are not intended to
inform about any real person or event.
© Amitai Aviram. All rights reserved.
Tips for the exam
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© Amitai Aviram. All rights reserved.
Tips for the exam
What does the exam test?
1.
2.
3.
Identifying legal issues & the relevant law for analyzing these issues
Applying the law to the relevant facts
Making succinct analytical arguments (economize on words)
–
–
–
Discuss only issues relevant to the question
Use outline form (see model answers of past exams)
Abbreviations
•
•
•
–
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Reference relevant case law / legislation
Reference your earlier analysis (but make sure you are referencing a narrowly
defined text); e.g.:
•
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Words/terms on the abbreviations list
Abbreviations used in exam fact pattern
Labeling: Label frequently used, multi-word names/terms
“3. SoR: Because a majority of the board doesn’t have CoI (see 1a3 above), BJR is
the applicable SoR.”
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Tips for the exam
Preparing for the exam
• Prepare an outline (or checklist) that facilitates your ability to –
– Notice the legal issues that come up
– Notice legal issues that often come up when another issue is raised (e.g., is it a
partnership <-> is it an agency relationship?)
– Find the relevant law
• Do practice exams & compare your answer to model answer
– Practices your issue-spotting skills
• Footnotes in the model answers are comments on common mistakes; they are not part
of the expected exam answer
– Tests & improves your outline’s ability to alert you to issues
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© Amitai Aviram. All rights reserved.
Exam prep
Case study: Sally’s Salads
• Spoiler alert: I will discuss the case in the following slides. If you have
not yet tackled the case on your own, you should do so before
reviewing these slides, or you will lose most of the educational
benefit of the case.
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© Amitai Aviram. All rights reserved.
Exam prep
Case study: Sally’s Salads
1. Can the suit be dismissed for failure to make a demand on the
board?
• The suit is indeed derivative – the harm alleged is the board’s entrenchment. This is
only harmful to shareholders if it harms SSI itself, so under Agostino & Tooley the
suit is derivative. Demand is futile, though, under Aronson, since a majority of the
board – Sally and her son Sam – are not independent in assessing an allegation that
they are entrenching themselves and preventing a deal that would take control of
SSI away from Sally.
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© Amitai Aviram. All rights reserved.
Exam prep
Practice exam: Sally’s Salads
2. Was the dividend authorized by the SHs?
• Call: no evidence challenging the validity of calling the meeting.
• Quorum: Quorum consists of a majority of shares entitled to vote (DGCL §216(1)).
Do the withheld shares count as “entitled to vote”? They would if they were
present for any issue during the meeting. Since this was a special meeting and
voting on the dividend seems to have been the only issue, these shares seem not
to have been present at the meeting and therefore don’t count for quorum. This
means that 5,995,000 shares counted for quorum (for, against and abstaining),
which is a majority of the 10,000,000 shares entitled to vote.
• Vote: “[T]he affirmative votes of the majority of shares present… shall be the act of
the stockholders” (DGCL §216(2)). Under Licht, votes abstaining count as voting
power present. Under Berlin, votes withheld are not part of voting power present.
There were 5,995,000 votes present, so a majority would be 2,997,500. Only
2,995,000 votes were in favor, so the vote fails.
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© Amitai Aviram. All rights reserved.
Exam prep
Practice exam: Sally’s Salads
3. Did SSI’s board exceed its authority in issuing the dividend?
• SH vote was precatory (and anyway did not prohibit the dividend, just failed to
approve it). Under DGCL §141(a) and Section 1 of Article VI of SSI’s charter, the
board has authority to manage the business and affairs of SSI, including
implementing takeover defenses. The board can issue a dividend without receiving
SH approval.
• However, SHs were not asked to approve an increase to the number of authorized
Class A stock. Since all authorized Class A stock has already been issued, issuing a
dividend of Class B stock that is convertible into Class A stock exceeds the board’s
authority.
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Exam prep
Practice exam: Sally’s Salads
4. Did SSI’s directors breach their fiduciary duties in issuing the
dividend?
a.
b.
c.
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Flaws: The dividend is a takeover defense that may entrench the board. SH owning
1 Class A stock and 1 Class B stock has 11 votes, but if he sells the shares to CCAC,
the Class B stock converts to Class A stock and the combination has only 2 votes.
Those who do not sell to CCAC will have 11 votes for the same combination of
stock. This is a form of takeover defense known as a “tenure voting plan”.
Duty: The three directors owe a FD as SSI directors. Sally is also a controller, but
the challenged actions are ones in which she functioned as a director. Also, if the
challenge was to Sally as a controller, she would not have breached her FD under
Sinclair, since she did not receive anything to the exclusion of and detriment to
the other shareholders.
SoR: Because the dividend implements a takeover defense that deploys corporate
power against SHs ability to sell their shares to an acquirer, enhanced scrutiny
applies (Unocal). Revlon does not apply because SSI did not “embark[] on a
transaction […] that will result in a change of control” (Lyondell). The board “just
said no.”
© Amitai Aviram. All rights reserved.
Exam prep
Practice exam: Sally’s Salads
4.
d.
Did SSI’s directors breach their fiduciary duties in issuing the dividend? (Cont’d)
Application
1. Quasi-BJR
• Purpose: Revlon does not apply (see 4c). Unlike Unocal, here no threat of
structural coercion. However, there is substantive coercion if the board views
CCAC’s plans of leveraging the firm as a threat to SSI’s “corporate culture”
(Paramount) or simply as an imprudent strategy.
• Good faith: no evidence of lack of good faith or of self-dealing.
• Reasonable investigation: no evidence of negligence.
2. Reasonableness
•
•
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No coercion of SHs. Voting plan can’t be dismantled once implemented, since
the board is not authorized to amend redemption terms when Class B stock is
outstanding. There are precedents where lack of a way to dismantle a takeover
defense invalidates the defense as preclusive (Carmody), or as an illegal
constraint on future boards’ discretion (analogous to Quickturn). However, the
voting plan doesn’t make a takeover “realistically unattainable”: if CCAC buys
enough Class B shares it can gather a majority of votes, since few Class B shares
with supervoting rights would remain. So no preclusion here.
Nonetheless, it may be disproportional: it significantly hinders any takeover,
including from bidders with “compatible culture” (so it goes beyond the
defense’s purpose). If deemed disproportional, the dividend fails the Unocal
test, so the directors breached their FD.
© Amitai Aviram. All rights reserved.
Exam prep
Practice exam: Sally’s Salads
4.
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Did SSI’s directors breach their fiduciary duties in issuing the dividend? (Cont’d)
e. Ratification: Under Gantler, SH vote can be seen as ratification only if the vote
was designated as ratification. Under Fliegler, Sally’s 2,500,000 votes in favor
would not have counted. And even with Sally’s votes, the vote failed (see 2).
No ratification.
© Amitai Aviram. All rights reserved.