biz org class 26

insider trading.

1. model 14(a)(8)
2. GM IPO.

no insider trading unless there's a fiduciary duty (chiarella). but the basic insider trading rule is one that says that if there's a SH that owes FD, they have the duty to abstain.

tipper has to owe a FD.

there must be a FD owed to the source of the information.

wilkes duties: anytime a shareholder's conduct is challenged, they must show the legitimate business interest must be demonstrated and it must be shown that the minority shareholder's interests could not have been better protected.

controlling shareholders who freeze out minority shareholders.

smith v. atlantic properties.
wolfson, the founder of the business, was worried that the other investors would all gang up on him and form a group against him to freeeze him out. wolfson wants a provision that says "all important decisions require an 80% shareholder vote" which works out because all the shareholders own 25%. meaning that you need all the shareholders to agree, OR any one can veto a business decision. wolfson wouldn't agree to a property issue because he didn't like the other shareholders and made the firm liable for taxes.

it's a question of why the court picked on wolfson: the court blames him for wanting to have more tax liability.

jordan v. duff & phelps
larger company but still closely (not-publicly) held.
jordan had to argue that had he known of the merger, he would have stuck it out so that he could earn more money and maybe the familial dispute wouldn't have been so salient for jordan and his wife. he would have understood that duff&phelps was worth a lot more than the book value, and i wouldn't have quit. some people think that this is pretty implausible, but this is what the majority accepted.

"disdain or disclose rule" (see texas gulf-sulphur, where the company released a misleading information and insiders who traded on non-public, material information)

we have to accept jordan's claim that he would have stayed if he had known.
and so, the question for the court becomes -- if jordan had decided not to quit the firm, could duff&phelps have fired jordan before the merger occurred? this conflict of analysis is the conflict between the dissent and majority's opinions. the majority says that because jordan was at-will, duff&phelps could have said "so long sucker" even before he quit. easterbrooks says that duff&phelps could not have fired jordan just to keep him out of the benefits of the merger because of the duty of utmost good faith prevented them from doing an opportunistic firing. under s. 10(b)(5) -- is not applicable if the SH can't reply. but here, the shareholder could have responded by staying at the company and not quitting.

so this case combines wilkes duty and federal law under 10(b)(5).

mergers and acquisitions

farris v. glen -- de facto merger doctrine
mergers are the amalgamation of two companies under state statute, where one survives and the other disappears. typically, the larger company swallows the smaller and a merger agreement is written. shareholders of the company that gets eaten have to get something worth the equivalent of what they had that got sucked up.

tender offer:
in this case, list may buy control of GA by acquiring shares of GA from GA shareholders through a tender offer. list may pay cash OR use List shares as consideration
once list has control, it can use the state's short-form merger statute & GA disappears

in PA, dissenting shareholders have appraisal rights when the company merges with another AND when their company has sold its assets.

in DE, shareholders have appraisal rights only when their company merges, and have no rights in asset sales.

weinberger v. UPO Inc.
think of wilkes, where the minority shareholder was frozen out. the best way to eliminate liability to minority shareholders is to freeze them out during the merger. in this case, UPO, which became Signal, gave cash to the minority shareholders. this means that it needed to recommend the merger and the minority needed to vote. the problem for the companies is that the people on the UPO board were also Signal directors and officers.

utmost good faith: merger requires fair price and fair dealing. the officers should have shared what they knew with the independent board members, and they didn't. that's a fiduciary duty loyalty of breach. the directors have the burden of proving that this merger then was fair, since there were officers on both sides of the deal.

this is familiar to the analysis in sinclair, where the shareholder had to prove intrisic fairness. it also parallels the wheelabrator case which deals with disinterested shareholders -- with respect to controlling shareholders, the burden of proof may be shifted to the plaintiff to show unfairness