Corps II Final Study

Question 1

Duty of care

Answer 1

DOD-SCOP-AIR

1. presumption that Directors and Officers owe a fiduciary duty to the corporation;
2. must exercise duties with same degree of Diligence, Care, and Skill which
3. an Ordinary Prudent erson would manage their own affairs.
4. Areas include: Attentive to corporate business,
5. Informed and duly deliberate, and
6. Rational basis for decisions.

Question 2

Business Judgement Rule

Answer 2

DOLLERS-FaDS-P

1. Directors or Officers
2. Are not Liable for Losses to corporation where
3. they Exercised good faith and
4. Reasonable judgement.
5. safe harbor when Fair; or approved by
6. Disinterested directors; or
7. Disinterested shareholders.
8. Presumption of due care

Question 3

Duty of loyalty

Answer 3

DOFLI-CUBAS

1. Directors and Officers owe a Fiduciary duty of Loyalty
2. to promote the Interests of the Corporation without regard to personal gain
3. bars Usurping any legitimate Opportunities of the corporation.
4. not Competing
5. not Both sides
6. Approval by disinterested directors or shareholders = safe harbor.

Question 4

Approving conflict of interest transactions (Ratification for breach of duty of loyalty)

Answer 4

1. common law - only majority vote of shareholders could ratify, otherwise voidable by corporation, liable for profits.
2. modernly - ratified by board if fair and honest by disinterested majority;
3. interested can satisfy quorum, but not majority vote.

MOSOV-MoDD (Majority of Shareholders Otherwise Voidable Majority of Disinterested Directors)

Question 5

Fairness factors for conflicts of interest

Answer 5

1. adequacy of proposed Consideration;
2. availability of Alternatives
3. Financial position of corporation;
4. Need to enter transaction

CAF-N

Question 6

Self-dealing (conflict of interest)

Answer 6

1. Director or Officer’s Misuse of Assets for Direct personal benefit;
2. Disgorgement and Lost Profits.
3. Constitutes a breach of loyalty

DOMAD-DiLP

Question 7

Corporate opportunity doctrine

Answer 7

1. Legitimate corporate opportunity;
2. Financially able to undertake;
3. within Line of business (Fundamental Knowledge, Experience Practical; Ability to Pursue); and
4. Interest or Expectancy (Formalized plans, Standard Operating Procedures).
5. Disclose and decline.

FULFEPAP-IE-FoP-SOP

Question 8

Duty of disclosure

Answer 8

DOMReL

1. Director or Officer with Material facts;
2. RElevant to proposed transaction before the board;
3. Breach of duty of Loyalty if fails to disclose.

Question 9

Rule 10b-5, in general

Answer 9

1. Deceit or Fraud in connection with Sale of a Security;
2. Materiality - Reasonable Investor;
3. Scienter - Intentional or Knowing;
4. Standing - In Connection With or Fraud On Market;
5. Causation - Relied Upon; and
6. Damages - Liquidated;

DOFICSOS-MIR-SIK-SICFOM-CRUDL (Deceit or Fraud In Connection Sale of Security - Materiality Investor Reasonable - Scienter Intentional Knowing - Standing In Connection Fraud on Market Causation Relied Upon Damages Liquidated)

Question 10

10b-5 Elements

Answer 10

1. Jurisdiction - IC or national exchange;
2. Omission/misstatement;
3. Material - reasonable investor;
4. Scienter - intent or reckless;
5. Standing - Anyone who bought or sold;
6. Causation/ Reliance (for misrepresentation, not omission);
7. Privity - not req’d like CL;
8. Remedies.

Jeff Once Made Some Spicy Crazy Pork Rice

Question 11

10b-5 Opening Paragraph

Answer 11

It is unlawful for any person, directly or indirectly, by use of any means or instrumentality of interstate commerce or the mails, to employ any fraudulent or manipulative devices in connection with the purchase or sale of any securities.

Question 12

10b-5 liability types

Answer 12

1. Primary - Substantial factor or Bright-line;
2. Control person - 1) actually exercised control; 2) power or ability to control, co-exist with respondeat superior;
3. Aider or abettor - creation, distribution, or publication.

P-SuB-CAPARS-ACDOP (Primary Substantial Bright Control Actually Power Ability Respondeat Superior AIDER Creation Distribution or Publication)

Question 13

Statute of limitations, derivative - 10b-5 and §16(b)

Answer 13

1. 10b-5 - 2 years from discovery, not to exceed 5;
2. §16(b) - 2 years, no tolling for failure to file, Derivative after 60 day Demand.

10-2-5-16-2-60Day

Question 14

Tippee liability

Answer 14

1. Breached duty by Improperly Disclosing;
2. Tippee liable under 10b-5 for Trading on Material Nonpublic Information;
3. improper if Tipper expects to receive personal benefit;
4. Tippee must have Reason to Know of Tipper’s breach

BID-TOMNI-BIRK (Breached Improperly Disclosing Trading on Material Nonpublic Information Benefit Improper Reason Known)

Question 15

Misappropriation theory

Answer 15

1. Non-insider trading on Material Nonpublic Information;
2. 10b5-(2), Duty of Trust and Confidence (list)

NITOMNI-DOTAC (Non Insider Trading on Material Nonpublic Information Duty of Trust and Confidence)

Question 16

§16(b)

Answer 16

1. Director, Officer, or 10% Shareholder are Strictly Liable;
2. Swing Trade 6 months;
3. Unfairness Presumed;
4. Mergers, Exchanges, Exercise, Not Conversions;
5. Ratify by Board;
6. Publicly traded or public Debt.

DOSSL-STUP-MEENC (Director Officer Shareholder Strictly Liable Swing Trade Unfairness Presumed Merger Exchange Exercise Not Conversion)

Question 17

Rule 14A-9

Answer 17

1. No proxy solicitation shall be made that is
2. false, misleading, or omitting material facts
3. Materiality = Reasonable person would attach importance.