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1 a n g e l ‘ s n o t e

B U S I N E S S O R G A N I Z A T I O N

Where Were We --- February 22, 2012

February 22, 2012

PROCEDURE OF MERGER

1. Approval of plan --- majority of the BOD of each corporation,

party to the merger, shall approve a plan of merger setting forth:

a. Names of the corporation proposing to merge

b. Terms of the merger and the mode of carrying the

same into effect

c. A statement of changes, if any, in the articles of

incorporation of the surviving corporation

d. Other provisions with respect to the proposed merger

2. Submission to stockholder or members for approval --- submitted

to each corporation at separate corporate meetings (2/3 vote)

3. Execution of a formal contract – after approval by the prescribed

vote of SH, a formal contract known as articles of merger shall be

executed by each of the constituent corporations, to be signed by

the president or VP and certified by the secretary or assistant

secretary setting forth

a. The plan of the merger/consolidation

b. The number of shares outstanding

c. The number of shares or members voting for and

against such plan, respectively

4. Submission to SEC for approval – the articles shall be submitted to

SEC in quadruplicate for its approval (provided: recommendation

of appropriate government agency for those governed by special

laws)

5. Conduct of hearing by SEC – if it has reason to believe that the

proposed merger is contrary to or inconsistent with the provisionsof the Code or law (Commission may or may not conduct a

hearing)

6. Issuance of Certificate by SEC – the merger shall then be effective

LEGAL EFFECTS OF MERGER (SEC. 80)

1. The constituent corporation shall become a single corporation

2. Separate existence of the constituent corporations shall cease,

except the surviving corporation

3. The surviving corporation shall possess al the rights, privileges,

immunities and powers and shall be subject to all the duties and

liabilities of a corporation

4. The surviving corporation shall possess all the rights, privileges,

immunities and franchises of each of the constituent corporations

(ALL ASSETS ARE TRANSFERRED TO THE SURVIVING CORP)

5. All liabilities and obligations are transferred to the suriving

corporation

Q: suppose the employees are organized, meaning they have a union, while

the others don’t have a union, what could happen? Supposing the surviving

corporation does not have a union…

A: You should respect the union that is existing. Because the existence of the

union and that of the corporation is separate. You should respect what has

been agreed upon in the collective bargaining agreement.

THE UNION GOES TO Y CORPORATION. So that instead of corporation X

giving the privileges as contained in the CBA, it is now corporation Y.

Q: if corporation X is granting one sack of rice to its employees every week,

what happens to the employees of corporation Y after the merger, will they

receive the same?

A: all members are to receive what union members receive subject to thecondition that those non union members are to pay the union or

membership fee.

Q: however, the union members will complain also, what do you think will be

complain?

A: they will complain as regards the membership fee.

Q: so there will be problems, how will you suggest in order tosolve such

problem?

A: Note: you cannot compel them to join the union because of the freedom

of association.

Prior to the consolidation and merger, there should be a deliberation with

the employees and even the employers. This should be discussed during the

planning stage. This should even have been discovered even before drafting

the plan of merger, --- during the INVESTIGATION PERIOD/BACKGROUND

CHECK.

TRY TO DISCOVER EVERYTHING WITH DUE DILIGENCE!

Q: in another aspect, corporation X also discovered (after the merger) that

the corporation Y’s large office or building was on a land which did no

belong to corporation Y. --- it was discovered that Corporation Y only owned

the building but not the land it was on. Who owns the building?

A: the surviving corporation. The land belongs to whoever corporation which

owns it

Q: they also discovered that the lease agreement provides that the lease

contract shall not be assigned to someone else, and should be enjoyed only

by the lessee. Is there a problem?

A: the problem is the non-assignable of the lease.

It is possible that the owner of the land may rescind the lease contract

because of change of lessee.

There is contradiction of the lease contract which must be assigned and the

articles of merger which according to the law does not need an assignment(in merger, there is automatic transfer of assets, rights, liabilities, privileges

franchises and permits)

Q: So which of the two will prevail?

A: most likely it will end up in courts --- which is the last thing that the

merger will do. --- SO MAYBE THEY CAN JUST MAKE COMPROMISE.

THE POINT IS THAT YOU SHOULD EXERT DUE DILIGENCE TO INVESTIGATE ON

THE STATUS OF EACH CORPORATION.

--- THIS MUST BE SETTLED, DISCOVERED AND AGREED DURING TH

PLANNING STAGE AND THAT EVERY ASPECT MUST BE CAREFULLY SEARCHED

AND INVESTIGATED. --- THAT’S THE PURPOSE OF THE DUE DILIGENCE.

So the only way we could have a perfect marriage if we only know who are

we trying to unite with.

---- APPRAISAL RIGHT----

Q: In a corporation, your relationship with the corporation is?

A: I am an investor. As investor, you have the right to know the financia

condition of the corporation. And since you own your stocks, you have the

right to dispose your stocks. And you also have an appraisal right. As an

investor you have the right to dividends and to vote.

Q: so if you no longer want to remain in that corporation?

A: I can sell... either to the existing SH or to non-stock holders.

Q: however, if there are no takers?

A: I could sell it to the corporation.

Q: how much?

A: sell it at its FAIR VALUE (note: not fair market value)

But note that there are certain conditions for you to sell your shares to the

corporation. IT IS NOT AN ABSOLUTE RIGHT

Q: what do you mean?

A: your right to sell it back to the corporation and leave is subject to

limitations.






Q: what good reason must you have to be able to demand to the

corporation?

A: because you can exercise such a right, you should have voted against a

change in the corporation which has the effect of changing your rights which

requires the consent of the SH.

--- in this situation, you can exercise your appraisal right.

Q: so that one occasion where in you can demand for appraisal right is when

there are fundamental changes, what are these fundamental changes?

A: Section 81

1. In case any amendments to the articles of incorporation has the

effect of

a. changing or restricting the rights of any SH or class of

shares, or

b. of authorizing preferences in any respect superior to

those of outstanding shares of any class, or

c. of extending or shortening the term or corporate

existence

2. in case of sale, lease, exchange, transfer, mortgage, pledge or

other disposition of all or substantially all of the corporate

property and assets

3. in case of merger and consolidation

Q: illustrate “authorizing preferences” (1.b.)?

A: as regards dividends and voting rights. Like others can only get stock

dividends and not cash dividends. When the old SHs are entitled to double

the dividends.

Q: other than the demand for an appraisal right, is there other way that I

leave and get my cash?

A: for big corporation, they can sell it to the public (publicly listed

corporation --- sell it in the stock exchange). Or even if not publicly listed, you

can sell it to the existing SHs or anyone (friends)

I am free because this is my property. So I am entitled to convey such

because it is part of my right to ownership. (right to dispose)

Q: if no one will buy it, do you think I can leave?

A: No. because you need to consider the TRUST FUND DOCTRINE.

Because if I leave without a valid reason, the creditors will be prejudiced.My

assets form parts of the capital which is reserved for the creditors. And if I

withdraw, such capital will be diminished.

Q: so if you have an URE, but you don’t fall under any of the circumstances

can you exercise the appraisal right, can you exercise that right?

A: NO.

Q: can you compel the corporation to buy?

A: no. because you have to take into account the trust fund doctrine. You can

only compel the corporation to buy as long as there are URE.

Q: so does both need to exist: URE and the GROUNDS for APPRAISAL RIGHT?

A:

IF THERE ARE OCCASIONS TO EXERCISE APPRAISAL RIGHT BUT NO URE, YOU

CANNOT EXERCISE THE APPRAISAL RIGHT.

HOWEVER: (if grounds exist but no URE, can he exercise the right?)YES HE CAN EXERCISE HIS APPRAISAL RIGHT, BUT HE CAN ONLY GET PAID

WHEN THERE IS UNRESTRICTED RETAINED EARNINGS.

- He will only be paid if there is existence of URE

Exercise of such right should be distinguished from payment.

Absent the occasions, you cannot exercise the appraisal. Why?

- Those situations refer to things which were not contemplated in

the agreement.

- If you remain in the corporation but you are a perennial dissenter

then the law can allow you to leave.

- You cannot leave the corp without the instances bec this would

violate the trust fund doctrine.

- Because you are an investor you took the risk therefore whethe

the corp is doing good or doing bad you should stay with the corp

PROCEDURE

1. stockholder should dissent to the fundamental change (present a

the meeting, voted against)

2. written demand of the fair valuewithin 30 days from the dissent

--- fair value is determined as of the day prior to the date on

which the vote was taken notwithstanding and appreciation o

depreciation in value

--- within 60 days from approval of corporate action, and the SH

and corporation cannot agree on the fair value, it shall be

determined by the appraisal committee

3. within 10 days from demand submit certificate to the corporation

for notation

4. within 30 days from award, the corporation should pay you

(provided there are URE)

5. the SH shall fortwith transfer his shares to the corporation

Q: so one decision was made by 2/3 of the SH. And that was to engage in

another business for their secondary business. However, the minority latediscovered that they decided to rent that place because it was owned by the

president and vice president. Can they exercise the right?

A: This is not an instance of appraisal right. Instead, because there is bad

faith, then the minority SH can go the SEC or courts to rescind such

contract….

THE REMEDY IS TO ANNUL THE LEASE. Although you cannot ask for an

appraisal right because this is not one of the grounds. You can ask for the

annulment of any agreement entered into.

Q: So what is required to exercise such right?

A: refer to steps above

Q: what if the SH was absent?

A: if there is proxy, then you can still exercise such right. But if there is no

proxy, the SH should be PRESENT in the meeting, otherwise, he cannotexercise the right.

Q: so that if the inability to participate during the deliberation is excusable

what do you think?

A: The law states that HE MUST HAVE BEEN PRESENT AND HE MUST HAV

DISSENTED.But logic will tell us that since it is an important right --- sir: he

should still be allowed to exercise if he had good reason to be absent.

Q; what is the effect of the appraisal right?

A: your rights are suspended: rights to dividends and voting rights. But the

right to receive the fair value of his shares is not suspended

Q: how do you determine the fair value of the shares?

A: it is the corporation which will determine. If the corporation cannot decide

within 60 days, then you form an appraisal committee.

Q; what is the composition of the appraisal committee?

A: 3 persons

1. one shall be named by the SH

2. another by the corporation

3. chosen by the two thus chosen

Q: after exercising appraisal right, he discovered that the business became

profitable, so he decided to recall his decision to exercise that right, what

could happen?






A: generally, the right to withdraw the appraisal right cannot be done unless

with the consent of the corporation.

Q: if the corporation agrees, what happens?

A; your rights are revived. Your status as a SH is restored.

Q: what are the reasons that the right ceases? (EXTINGUISHMENT OF RIGHT

TO PAYMENT)

A:

1. Such SH withdraws his demand for payment and the corporation

consents thereto;

2. The proposed corporate action is abandoned or rescinded by the

corporation

3. The proposed corporate action is disapproved by the SEC where

its approval is necessary

4. The Commission determines that such SH is not entitled to

appraisal right

(Refer to #3) --- In other words, the occasions that we have referred to as

proper grounds to exercise the right of appraisal are instances which may be

reviewed by the SEC. example of which is the plan of merger. (this plan is to

be submitted to the SEC --- if disapproved, the merger does not happen and

so the appraisal right is automatically terminated.)

If the corporation eventually abandon that plan, thenthere is no more point

paying.

Q: what if the corporation still decides to pay even if the SEC disapproves themerger?

A: this cannot be done. It is in violation of the code already. You cannot

continue to demand payment and the corporation should not even pay.

if the corporation will force to pay even if there is no ground to exercise the

appraisal right, this will be tantamount to bad faith of wanting to kick out the

SH.

--- THE CORPORAITON IS TRYING TO DISTRIBUTE THE CAPITAL/ASSETS AS

VIOLATIVE OF THE TRUST FUND DOCTRINE AND PREJUDICIAL TO THE

CREDITORS.

Q: who composes the appraisal committee?

A: 3 persons

1. one shall be named by the SH

2. another by the corporation

3. chosen by the two thus chosen

Q: compensation of the committee?

A: reasonable amount (rule: apply section 85)

GR --- corporation will pay.

The costs and expenses of appraisal shall be borne as follows:

1. By the corporation ---

a. where the price which the corporation offered to pay

the dissenting SH is lower than the fair value as

determined by the appraisers named by them;

b. Where an action if fled by the dissenting SH to recover

such fair value and the refusal of the SH to receive

payment is found by the court to be JUSTIFIED

2. By the dissenting SH

a.

Where the price offered by the corporation isapproximately the same as the fair value ascertained

by the appraisers

b. Where the same action is filed by the dissenting SH

and his refusal to accept payment is found by the court

to be UNJUSTIFIED

Q: other than those mentioned in the law, what else are the grounds to

exercise your appraisal right?

A: in all occasion when the qualified majority of the SH is required.

When the corporation decides to invest its fund in another business which is

not related to the primary business of the corporation

In a close corporation, when there are sufficient assets, the SH can demand

for the return of the fair value of the shares

Q; which is more lenient then, close or opencorporation ?

A: close corporation is more liberal on the exercise of appraisal right.

Q: what is your ideal of your close corporation? What makes it close?

A: limited to a certain number of SH (look at book)

--- next topic: non stock corporation and close corporation

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