US-CN Companies & Securities Law Assignment

Insider Trading There are two critical issues for securities laws in relation to insider trading: what information constitute insider information not to be used for trading and who is insider which is required to be prohibited for trading. information In cases related to insider trading, SEC and courts do not establish quatity standard for insider trading, to avoid further fraud. insider Examples of Insiders Insiders Insiders who obtain material, nonpublic information because of their corporate position—directors, officers, employees, and controlling shareholders—have the clearest 10b-5 duty not to trade. Constructive (or temporary) insiders Outsiders with no relationship to the company in whose securities they trade also have an abstain-or-disclose duty when aware of material, nonpublic information obtained in a relationship or trust or confidence. See O’Hagan. The outsider’s breach of confidence to the information source is deemed a deception that occurs “in co...

Procedural safeguards For a going private transaction, Delaware Supreme Court held that a proposed going private transaction need the approval of a special comittee consisting of independent, disinterested directors and the vote of the majority of the minority stockholders with all relevant information for the proposal. If a challenging stockholder file a complaint questioning a going private transaction by a controlling stockholder, a Delaware court will apply the stringent entire fairness standard of review, rather than the deferential business judgement standard which apply to broad actions. When both two processes are accomplished, however, The burden of proving the procedural and substantive fairness of a proposed controlling stockholder transaction can be shifted to the stockholder plaintiffs

Case 1: In re Appraisal of Dell Inc. On August 14, 2012, Michael Dell, the president of Dell   On August 14, 2012, Mr. Dell first informed the chief independent director of the company's board of directors that he was preparing his going private. 'The board of directors immediately held a plenary meeting on August 17th to hear Mr. Dell's formal report and a meeting again on August 2 to set up a special committee Going private procedures Case 2: In re Dole Food Co., Inc. Stockholder Litigation Case 3: Chinese Concepts Stocks With poor protection of Cayman Islands Company Law for public investors, many companies of China choose to register in Cayman Islands.

Disclosure for Going Private Transactions Fedaral securities laws impose some disclosure requirements for going private transactions. As a matter of law, directors of a target company are required to disclose all relavent information to public stockholders to make sure that these stockholders can make informed decision to approve or reject the going private transaction. Then, SEC has established rules that particular information must be included in the public disclosure for a going private transaction. Apart for the same filling disclosure as any other acquisiton acquisition transactions, a going private transaction also requires disclosure requirement of Rule 13e-3 of the Exchange Act. the basic disclosure required by SEC rules depend in apart on the structure of the transaction. For a transaction structured as one-step merger, the target company must solicit approve of its stockholders with a proxy statement complying with Regulation 14A and Regulation 14C under the Exch...

Structure for Going Private Transaction Like any other acquisition of public companies, a going private transaction is generally accomplished in one of the two ways: One-step merger tender offer followed by a back-end merger (known as a two-step merger ) Besides, whether a going private transaction involve a controlling stockholder affect the structure of the transaction. A going private transaction by a controlling stockholder creates an inherent conflict of interest . The controlling stockholder seeks to acquire entire ownership of the target company, while it owes fiduciary duty to minority stockholders. If a lawsuit challenging a going private transaction by a controlling stockholder, thus, is filed, a Delaware court will apply the stringent entire fairness standard of review . A going private transaction may also involve an acquisition of a public company by a non-controlling stockholder or a leveraged buyout of a public company by a private equity firm or other th...

Litigation under Going Private Transactions There are two types of going private lawsuits. The one is brought by an acquiror against certain takeover defensive measures implemented by a company"s board of directors. For example, the acquiror may request the reviewing court to prevent the board from implementing any defensive measures, or seek mandatory redemption of poision pills by the board. The key legal issue is whether certain defensive measures implemented by Unocal test in Unocal v. Mesa , the board meet the standard of fiduciary duty established by Delaware courts.  The another is brought by stockholders of a target company, based on three reasons. The first, public investors can file complaints against board of directors based on claims of breach of fiduciary duties of them. In these cases, investors may claim that directors breach their fiduciary duties in the name of the company, commonly referred to as "derivative action". Although direct...

US Going Private Transaction Key issue For going private transactions, the most important legal issue is to make sure that a controlling stockholder and corporate executives of a target company protect interests of public investors of the company though this going private transaction. Advantages Permiting a controlling stockholder and its publicly traded subsidiary to integrate their operations more efficiently and effectively, without concerns for fairness to other stockholders. Allowing the board of directors to focus on long-term objectives rather than short-term profits to meet the expection. Permiting the public stockholders to realize a better price for their shares than they would realize from continuing to hold the shares or selling in the market, perhaps due to low trading volumes, or lack of any other buyer. In the case of a leveraged buyout, allowing the acquiror and the target company to realize the tax benefits of a more leveraged capital structure than wou...

Defensive Tactics for Corporate Control Unocal Corp. v. Mesa Petroleum Co.: Unocal Test Unocal Corp. v. Mesa Petroleum Co. is a landmark decision of  the Delaware Supreme Court on corporate defensive tactics against take-over bids. As a trial court, Delaware Court of Chancery found that this selective exchange offer was not legally permissible, and issued a preliminary injunction against the use of the self tender offer defense. The Delaware Supreme Court reversed the trial court. The Delaware Supreme Court found that the Unocal's board of directors had reasonable grounds for believing that a danger to corporate policy or effectiveness existed and that the response was reasonable in relation to the threat posed. This reasonable relation analysis permitted an analysis of the nature, price and time of the offer as well as the impact on shareholders, creditors, customers and employees. The Unocal test the court established to determine whether the directors...

There are some important sections of Securities Act of 1933, which often be cited in opinions and orders of securities fraud cases. Section 12(a) (2) Section 12(a) (2) of Securities Act of 1933, previously known as Section 12(2), allows a purchaser of a security to bring a private action against a seller that “offers or sells a security…by means of a prospectus or oral communication, which contains an untrue statement of material fact or omits to state a material fact necessary in order to make the statements … not misleading.” Section 13 Section 13 of Securities Act of 1933 sets forth the statute of limitations for Securities Act claims: No action shall be maintained to enforce any liability created under Section 77k [Section 11] or 77l (a)(2) [Section 12(a)(2)] of this title unless brought within one year after the discovery of the untrue statement or the omission, or after such discovery should have been made by the exercise of reasonable diligence .. In no ...