biz org class 11

IPO: initial offering of a class of securities to the public.

there's primary and secondary market. basically when securities are traded, bought, sold, etc
is the secondary market. the primary market is when the company creates and publicly sells
shares.

talk about how badly GM has been managed. the accounting was shotty in a mindboggling way, accounting was outsourced, hope that the government will

problem 1. suppose you are member of the board of a truck company. when the trucks are driven through PA, they are subject to a penalty of $200 fine. the risk of being caught/fined is about 20%. your practice and your competitors practice is to ignore, the alternative is to comply with the PA law. the cost of doing the alternative makes it impossible to compete without losing money.

problem 2. suppose the facts are the same as in the preceding, but you also learn that it is often possible to avoid the fine by paying a bribe to state officals. what do you do?

should shareholders be liable for breaking the law when they're breaking the law to make money for shareholders?

problem 1 and 2 are about fraud.

would you serve on a board where you would give bribes?

duty of loyalty. almost always brought with duty of care.
pre-requistes to duty of care.
- adequate care
- non gross negligence
- two approaches to the biz judgment rule as applied to duty of care

any board engaging in a grossly negligent process is a violation of duty of care.

kamen v. american express
smith v. van gorkom

all of this needs to be attached to 102(b)(7) and to the abstention approach.

duty of loyalty.
bayer v. beran
conflict of interest - this lead the court to conclude that the hiring didn't deserve the business judgment rule and the court would examine both the process and the substance of the decision. there's no judicial deference because there's a conflict of interest. the court closely examined the decision, and examined the process and then the substance as far as the fairness to the corporation.


who bears the burden of showing fairness?
business judgment rule doesnt' apply at the stage of showing conflict.

most of the board were insiders, so they were invested in the hiring of the singer.

benihana v. benihana

preferred shareholders

why did the benihana board end up in court?
because aoki sits on both sides of the transaction as beneficiary.
what saved the board is that it met to discuss the cost, the sale...
did all the things that smith v. van gorkhom didn't do

benihana made a three-member committee. the deal to sell to BFC
was better than the otehr possibilities. the full board approved the sale.
but the preferred was issued in 2 servings, which reduced the holding
company's voting power. so the sale of the prefereed diluted
benihana of tokyo in the company.

see 144(a) - only works if there's full disclosure, and BOT made a bad
argument that there wasn't full disclosure.