Corporate Practice Series Portfolio No. 19-3rd, The Sale of Corporate Control, analyzes the transfer for consideration of the control block of corporate voting securities and the subsequent vesting of control of the new owner. The portfolio deals with the determination as to when control has been sold and the limitations imposed on the transfer of control. A discussion of the receipt of a premium for the sale of the control block of shares, the prohibition of the sale of corporate offices, and the factors affecting the sale of control prefaces an examination of the aftereffects of the sale. Additionally, the portfolio considers post-transfer requirements and theories of liability for the unlawful transfer of control and includes a discussion applying the legal theories discussed therein to specific hypothetical fact situations involving the sale of corporate control.

Portfolio 19-3rd: The Sale of Corporate Control

I. Introduction: When Has "Control" Been Sold?

II. Limitations on the Transfer of Control
    . Introductory Material
    A. "Premiums"
    B. Prohibition of the Sale of Corporate Offices
    C. Management Entrenchment and Greenmail: The Two-Edged Sword

III. Factors Affecting the Sale of Control
    A. "Equal Opportunity"
    B. Governmental Approval
    C. Special Shareholders' Meetings
    D. Tender Offers
         1. Paramount I
         2. Paramount II
              a. When does a change in control arise?
              b. Applicability of Revlon duties
         3. Lyondell Chemical Co. v. Ryan
         4. Go-shop provisions
         5. Officers' fiduciary duties
         6. Specific defense tactics
         7. Other constituency laws
    E. Duty of Inquiry
    F. Minority Duties
    G. The Role of Corporate Counsel
    H. The Role of the SEC
    I. State Control-Share and Business Combination Statutes

IV. Aftereffects of the Transfer of Control
    . Introductory Material
    A. Looting
         1. The new control group
         2. The former management
    B. Exercise of “Due Care”
         1. Harman v. Willbern
         2. Swinney v. Keebler
         3. DeBaun v. First Western Bank and Trust Co.
    C. Subversion of Corporate Assets
    D. The Entire Fairness Doctrine and the Duty of Candor

V. Theories of Liability
    A. Common Law
    B. SEC Rule 10b-5
         1. Burdens of pleading and proof
         2. The influence of judicial decisions
         3. Closely held corporations
    C. RICO

VI. Post-Transfer Requirements
    . Introductory Material
    A. State Laws
    B. SEC Filings

VII. Conclusions and Practical Applications
    . Introductory Material
    A. Example I
        1. Is there a sale of “control"?
         2. Is a premium being offered?
         3. If a premium is being shared, is it necessary to investigate the purchaser?
         4. Purchase of offices
         5. Investigation of the purchaser's plans
         6. Financial investigation of the purchaser
         7. Seller's purchase of other shares
         8. Disclosure of the agreement to sell
    B. Example II
    C. Example III

Portfolio 19-3rd: The Sale of Corporate Control

Wks. 1 Rule 14f-1 of the Securities Exchange Act of 1934

Wks. 2 Form 8-K

Wks. 3 Rule 14d-10(a) of the Securities Exchange Act of 1934

Wks. 4 Rule 13e-4(f)(8) of the Securities Exchange Act of 1934

Wks. 5 New York Business Corporation Law § 912

Wks. 6 Delaware General Corporation Law § 203

Wks. 7 Contract for Sale of a Control Block of Securities

Wks. 8 Contract Provisions for Calling a Special Shareholders Meeting

Wks. 9 Form of Director’s Resignation

Wks. 10 Minutes of Directors Meeting Reflecting Seriatim Resignations of Former Directors and Election of New Directors

Wks. 11 Right of First Offer for Sale of Stock

Wks. 12 Voting Consensus

Wks. 13 Registration Rights

Wks. 14 Preemptive Rights

Colin K. Harley
Harley & Deickler LLP
Woodbury, Connecticut