1. Chapter 40 Corporations: Mergers, Consolidations, Terminations Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

2. Merger (Definition): A legal contract combining two or more corporations such that only one of the corporations continues to exist; in essence, one corporation “absorbs” another corporation 40-2

3. Consolidation (Definition): A legal contract combining two or more corporations, resulting in an entirely new corporation; in consolidation, neither of the original corporations continues to exist 40-3

4. 40-4 Procedures for Mergers and Consolidations Boards of directors of all involved corporations must approve the plan Boards of directors of all involved corporations must approve the plan Shareholders must approve the plan through a vote at a shareholder meeting Shareholders must approve the plan through a vote at a shareholder meeting The corporations must submit their plan to the secretary of state The corporations must submit their plan to the secretary of state The state must review the plan, and if it satisfies legal requirements, grant an approval certificate The state must review the plan, and if it satisfies legal requirements, grant an approval certificate

5. 40-5 Other Terminology/Rights Regarding Mergers and Consolidations Rights of shareholders: Shareholders vote only on exceptional matters regarding the corporation Rights of shareholders: Shareholders vote only on exceptional matters regarding the corporation Short-form merger (Parent-subsidiary merger): Parent corporation merges with a subsidiary corporation; does not require shareholder approval Short-form merger (Parent-subsidiary merger): Parent corporation merges with a subsidiary corporation; does not require shareholder approval Appraisal right: Shareholder’s right to have his/her shares appraised, and to receive monetary compensation for their value Appraisal right: Shareholder’s right to have his/her shares appraised, and to receive monetary compensation for their value

6. 40-6 Purchase of Assets/Purchase of Stock Purchase of Assets: One corporation can extend its business operations by purchasing the assets of another company Purchase of Assets: One corporation can extend its business operations by purchasing the assets of another company Corporate Assets (Definition): All intangible items (corporate goodwill, company name, company logo, etc.) and tangible items (buildings, property, etc.) owned by the corporation Corporate Assets (Definition): All intangible items (corporate goodwill, company name, company logo, etc.) and tangible items (buildings, property, etc.) owned by the corporation Note: Generally, corporation that purchases assets of another corporation does not acquire its liabilities Note: Generally, corporation that purchases assets of another corporation does not acquire its liabilities Purchase of Stock: An acquiring corporation can take control of another corporation by purchasing a substantial amount of its voting stock Purchase of Stock: An acquiring corporation can take control of another corporation by purchasing a substantial amount of its voting stock

7. “Hostile” Takeover (Definition): A takeover to which management of the target corporation objects 40-7

8. 40-8 Other Types of Takeovers Tender Offer: Aggressor (acquiring corporation) offers target shareholders a price above current market value of their stock Tender Offer: Aggressor (acquiring corporation) offers target shareholders a price above current market value of their stock Exchange Offer: Aggressor offers to exchange target shareholders’ current stock for stock in aggressor’s corporation Exchange Offer: Aggressor offers to exchange target shareholders’ current stock for stock in aggressor’s corporation Cash Tender Offer: Aggressor offers target shareholders cash for their stock Cash Tender Offer: Aggressor offers target shareholders cash for their stock “Beachhead” Acquisition: Aggressor gradually accumulates target company’s shares “Beachhead” Acquisition: Aggressor gradually accumulates target company’s shares

9. 40-9 Self-Tender Offer (Definition): Response to corporate takeover attempt in which target corporation offers to buy its shareholders’ stock; if shareholders accept offer, target corporation maintains control of business

10. Leveraged Buyout (Definition): Occurs when group within a corporation (usually management) buys all outstanding corporate stock held by the public; group gains control over corporate operations by “going private” (i.e., becoming a privately-held corporation) 40-10

11. 40-11 “Legal Death” of Corporation Occurs in two phases: Dissolution: Legal termination of corporation Dissolution: Legal termination of corporation Liquidation: Process by which trustee converts corporation’s assets into cash, and distributes them among corporation’s creditors and shareholders Liquidation: Process by which trustee converts corporation’s assets into cash, and distributes them among corporation’s creditors and shareholders

12. 40-12 Voluntary Versus Involuntary Dissolution Voluntary Dissolution: Occurs when directors or shareholders initiate the dissolution process Voluntary Dissolution: Occurs when directors or shareholders initiate the dissolution process Involuntary Dissolution: State government forces the corporation to close Involuntary Dissolution: State government forces the corporation to close

13. 40-13 Reasons For Involuntary (State Government- Initiated) Dissolution of Corporation Corporation failed to pay taxes within 60 days of due date Corporation failed to pay taxes within 60 days of due date Corporation failed to submit its annual report to secretary of state with 60 days of due date Corporation failed to submit its annual report to secretary of state with 60 days of due date Corporation did not have a registered agent or office in the state for 60 days or more Corporation did not have a registered agent or office in the state for 60 days or more Corporation failed to notify secretary of state within 60 days that its registered agent/registered office had changed Corporation failed to notify secretary of state within 60 days that its registered agent/registered office had changed Corporation’s duration (as specified in its articles of incorporation) has expired Corporation’s duration (as specified in its articles of incorporation) has expired

14. 40-14 Reasons for Court-Ordered Involuntary Dissolution of Corporation Corporation obtained its articles of incorporation fraudulently Corporation obtained its articles of incorporation fraudulently Corporate directors have abused their power (“ultra vires” acts) Corporate directors have abused their power (“ultra vires” acts) Corporation is insolvent Corporation is insolvent

15. 40-15 Exhibit 40-3: Life Stages of a Corporation Incorporation—Company becomes incorporated when articles of incorporation signed Incorporation—Company becomes incorporated when articles of incorporation signed Corporation Conducts Business—Directors and officers oversee business, as shareholders ensure company’s stock has value Corporation Conducts Business—Directors and officers oversee business, as shareholders ensure company’s stock has value Dissolution—Corporation legally terminated, either voluntarily or involuntarily Dissolution—Corporation legally terminated, either voluntarily or involuntarily Liquidation—Directors convert corporate assets into cash and distribute them among corporation’s creditors and shareholders Liquidation—Directors convert corporate assets into cash and distribute them among corporation’s creditors and shareholders