Corporation LawVII. Merger and Consolidation1Section76. Planor merger of consolidation. Twoor morecorporations maymergeintoasinglecorporationwhichshall beoneof theconstituent corporationsor mayconsolidateintoanewsinglecorporation which shall be the consolidated corporation.The board of directors or trustees of each corporation party to the merger or consolidation shall appro!ea plan of merger or consolidation setting forth the following"1. Thenamesof thecorporations proposingtomergeor consolidate hereinafter referredtoastheconstituent corporations#$. The terms of the merger or consolidation and the mode of carrying the same into e%ect#&. ' statement of the changes if any in the articles of incorporation of the sur!i!ing corporation in case ofmerger# and withrespecttotheconsolidatedcorporationincaseof consolidation all thestatementsre(uired to be set forth in the articles of incorporation for corporations organi)ed under this Code# and*. Such other pro!isions with respect to the proposed merger or consolidation as are deemed necessary ordesirable.Section 77. Stoc+holder,s or member,s appro!al. -pon appro!al by ma.ority !ote of each of the board ofdirectors or trustees of the constituent corporations of the plan of merger or consolidation the same shallbesubmittedfor appro!al bythestoc+holdersor membersof eachof suchcorporationsat separatecorporate meetings duly called for the purpose. /otice of such meetings shall be gi!en to all stoc+holdersor members of the respecti!e corporations at least two 0$1 wee+s prior to the date of the meeting eitherpersonally or by registered mail. Said notice shall state the purpose of the meeting and shall include acopy or a summary of the plan of merger or consolidation. The a2rmati!e !ote of stoc+holdersrepresenting at least two3thirds 0$4&1 of the outstanding capital stoc+ of each corporation in the case ofstoc+ corporations or at least two3thirds 0$4&1 of the members in the case of non3stoc+ corporations shallbe necessary for the appro!al of such plan. 'ny dissenting stoc+holder in stoc+ corporations may e5ercisehis appraisal right in accordance with the Code" Pro!ided That if after the appro!al by the stoc+holders ofsuch plan the board of directors decides to abandon the plan the appraisal right shall be e5tinguished.'nyamendment totheplanof merger or consolidationmaybemade pro!idedsuchamendment isappro!ed by ma.ority !ote of the respecti!e boards of directors or trustees of all the constituentcorporations and rati6ed by the a2rmati!e !ote of stoc+holders representing at least two3thirds 0$4&1 ofthe outstanding capital stoc+ or of two3thirds 0$4&1 of the members of each of the constituent corporations.Such plan together with any amendment shall be considered as the agreement of merger orconsolidation.Section 77. 'rticles of merger or consolidation. 'fter the appro!al by the stoc+holders or members asre(uired by the preceding section articles of merger or articles of consolidation shall be e5ecuted by eachof theconstituent corporations tobesignedbythepresident or !ice3president andcerti6edbythesecretary or assistant secretary of each corporation setting forth"1. The plan of the merger or the plan of consolidation#$. 's to stoc+ corporations the number of shares outstanding or in the case of non3stoc+ corporations thenumber of members# and&. 's to each corporation the number of shares or members !oting for and against such plan respecti!ely.Corporation LawVII. Merger and Consolidation$Section 78. 9%ecti!ity of merger or consolidation. The articles of merger or of consolidation signed andcerti6edashereinabo!ere(uired shall besubmittedtotheSecuritiesand95changeCommissionin(uadruplicate for its appro!al" Pro!ided That in the case of merger or consolidation of ban+s or ban+inginstitutions building and loan associations trust companies insurance companies public utilitieseducational institutions and other special corporations go!erned by special laws the fa!orablerecommendationof theappropriatego!ernment agencyshall 6rst beobtained. :f theCommissionissatis6edthat themerger or consolidationof thecorporationsconcernedisnot inconsistent withthepro!isions of this Code and e5isting laws it shall issue a certi6cate of merger or of consolidation at whichtime the merger or consolidation shall be e%ecti!e.:f upon in!estigation the Securities and 95change Commission has reason to belie!e that the proposedmerger or consolidation is contrary to or inconsistent with the pro!isions of this Code or e5isting laws itshall set a hearing to gi!e the corporations concerned the opportunity to be heard. ;ritten notice of thedatetimeandplaceofhearing shallbegi!ento each constituentcorporationat leasttwo0$1wee+sbefore said hearing. The Commission shall thereafter proceed as pro!ided in this Code.Section7ust include" amendment if necessary to the '?: of the sur!i!ing corporation or incase of consolidation all the statements re(uired in the '?: of a corporationo Submission of plan to stoc+holders or members of each corporation for appro!al 'meetingmust becalledandat least twowee+s, noticemust besent toallstoc+holders or members personally or by registered mail Summary of the plan must be attached to the noticeCorporation LawVII. Merger and Consolidation= Hoteof$4&ofthemembers or of stoc+holdersreprsenting$4& ofthe outstandingcapital stoc+ will be needed 'ppraisal rights when proper must be respectedo 95ecution of the formal agreement referred to as the articles of merger or consolidation bythe corporate o2cers of each constitutent corporation Ta+e the place of the '?: of the consolidated corporation or amend the '?: of thesur!i!ing corporationo Submission of said articles of merger or consolidation to the S9C for appro!alo :fnecessary theS9Cshall setahearing notifyingall corporationsconcernedatleast$wee+s beforeo :ssuance of certi6cate of merher or consolidation 9%ecti!e only upon the issuance of such certi6cate 'll the constituent corporations shall be dissol!ed e5cept the sur!i!ing corporation 'lthough there is dissolution of the absorbed corporations there is no winding up of their a%airs orli(uidation of their assetso @atio" the sur!i!ingor consolidatedcorporationshall automatically ac(uireall the rightspri!ilegesandpowers aswell asall liabilitiesof suchconstituents andwouldusuallycontinue the combined business Creditors, rightso Cannot be impaired by such merger or consolidationo Suchrights will sur!i!ethemerger or consolidationandmaybeenforcedagainst thesur!i!ing or consolidated corporation Transfero Sur!i!ing corrpoation,s ac(uisition of the assets of the absorbed corporation4s is a transferwhich can be registered only upon the payment of the re(uired registration feeso The transfer or e5change of shares pursuant to a merger or consolidation is e5empt fromregistration under the Securities 'ct@emedies of creditors and dissenting stoc+holders# appraisal right Creditors cannot pre!ent merger or consolidation Creditor,s remedyo 9nforce their claims against the sur!i!ing or consolidated corporation o ?r if with fraudulent con!eyance to follow the assets of the dissol!ed constitutents in thehands of the sur!i!ing or consolidated corporation Aissenting stoc+holders cannot pre!ent if the re(uired !ote has been obtainedo @emedy e5ercise their appraisal right if they can pro!e fraud or gross unfairness they may en.oin the attempted merger ifthey act promptly or if already e5ecuted they may sue for the !alue of their interests rescission not usually granted since it may pre.udice persons not parties to the fraud wrong doneo is actually to the absorbed corporationso but personal action has been allowed as an e5ception to the rule that only a deri!ati!e suiton behalf of the corporation would be proper if the absorbing corporation issues new stoc+s to the stoc+holders of the absorbed corporation inpursuance to the merger agreement the stoc+holders of the former will ha!e no preempti!e rightto such stoc+so ratio" e5ceptinclosecorporations wheretheconsiderationrecei!edfortheissuanceofstoc+s is in the form of property there is no preempti!e rightSale of substantially all corporate assets same e%ect as merger or consolidationCorporation LawVII. Merger and Consolidation6o if the ac(uiring corporation also assumes the selling corporation,s liabilities and the lattershortens its term dissol!es li(uidates and distributes the stoc+ recei!ed to its stoc+holdersin e5change for its own stoc+ as a li(uidating distribution if no intent to combineo the consideration for the sale could be in cash or other properties and the sellingcorporationmaycontinueinthesameor inanewbusiness or remaininastateofsuspended animationLegal re(uirements de6nition of sale or disposition of substantially all assets and propertyo one which will render the corporation incapable of continuing the business or accomplishingthe purpose for which it was incorporatedo any dispostition short of this will not need stoc+holder action e!enif thecorporationshouldsell asi)ableportionof itsassets resultinginthecompleteabandonmentofoneofitsbusiness !entures iftheproceeds aretobeused for the operations of its remaining business resolution of the board of directorswouldbeall that isnecessary andtheappro!al of thestoc+holderswill not bere(uired# it follows that there will be no appraisal right if intention to combineo consideration for the sale will be stoc+s of the purchasing corporation su2cient assets should ha!e been reser!ed to pay claims of the purchased corporationo e5cept" creditors ha!e agreed to the sale and ha!e accepted the purchasing corporation asthe new debtor selling corporation would normally dissol!e by shortening its corporate term upondissolution it will ha!etoli(uidatebypayingall creditorsfromtheassetsreser!ed stoc+s which it recei!ed in consideration of the sale will then be distributedproportionally to its stoc+holders as li(uidation distribution thus they become stoc+holders of the purchasing corporation should board of directors decide to abandon the sale or other disposition the appro!al ofstoc+holders to such abandonment will not be necessary also co!ered" sale lease e5change mortgage pledge and other disposition/o assumption of liabilities# e5ceptions purchasing corporation not liableo when acted in good faith has paid ade(uate consideration for the assetso e5ceptions where the purchaser e5pressly or impliedly agrees to assume such debts where the transaction amounts to a consolidation or merger of the corporations where the purchasing corporation is merely a continuation of the selling corporation where the transaction is entered into fraudulently in order to escape liability of suchdebts sale of corporate assets may in!ol!e the pro!isions of the Eul+ Sales 'cto pro!ision renders !oid as fraudulent sales of stoc+s of merchandise in bul+ for cash or oncredit without complying with certain re(uired notice to creditorso conIict of authorityas totheapplicabilityof Eul+Sales 'ct madeinpursuancetoacorporate reorgani)ation@emedies of dissenting stoc+holders# appraisal right minority stoc+holders cannot stop the combination once re(uired !ote is achie!edCorporation LawVII. Merger and Consolidation7 remedy" appraisal right but can only be paid if the corporation has unrestricted retained earningsto co!er such paymentso the e5ercise of the appraisal right by a big number of dissenters could hinder the ma.ority,splans to combine if minority pro!eso saleisfraudulent andisenteredintomerelyfor thepurposeof free)ingthemout ande5cluding them from a fair articipation in the fruits of the sale they may sue to en.oin thesaleo if sale already e5ecuted they may reco!er the !alue of their prorportionate interest in thenewcorporation if onewas formed andmay also holdthe fraudulent directors andshareholders liable for damageso rescission rarely granted as innocent third persons may be ad!ersely a%ected appraisal righto may only be e5ercised by the dissenting stoc+holders of the selling corporationo /?T by the shareholders of the purchasing corporation @ule" a corporation can purchase the assets of another corporation by mere resolution of the boardof directors without need of stoc+holders, appro!alo -nless" an amendment of its '?: would be necessary to e%ect the purchase or the in!estment in the selling corporation,s business is not reasonably necessaryfor the accomplishment of its purpose if the business of the selling corporation cannot be reasonably included withinany of the purchaser,s purpose an amendment to its '?: would be necessaryto include the new purpose E-T e!en though stoc+holders, appro!al would be needed for suchamendment it will not in itself gi!e rise to the appraisal right of the dissentingstoc+holderso Gowe!er sincethepurchasewouldbeanin!estment inapurposeother than its primary purpose stoc+holders, appro!al of suchin!estment is necessary and appraisal right may be e5ercisedo :fbyamendmentof'?:thebusinessofthesellingcorporationhasbecome the primary purpose of the purchasing corporation then thein!estment therein needs no action of the stoc+holders and thereforeno appraisal right will be in!ol!edo :f business of selling corporation can be .usti6ed as reasonablynecessaryfor theaccomplishment of thesecondarypurposeof thepurchasing corporation Purchasing corporation need not amend its '?: :ts in!estment in the secondary purspose would re(uirestoc+holders, appro!al andwouldgi!erisetothedissentingstoc+holders, right of appraisal >ergero Thestoc+holders of thepurchasingcorporationcannot insist ontheir preempti!erightshould new or e!en treasury shares be issued to the selling corporation as a considerationfor thesaleof all itsassets sincetheissuanceisnot for cash unlessof coursesuchpurchaser is organi)ed as a close corporationCompared with merger and consolidation 'd!antage of merger or consolidation o!er sale of corporate assetso >erger and consolidation furnish a short cut to the accomplishment of !arious transactionso '!oid the di2culty delay and e5pense which usually accompany dissolution winding up anddistribution of assets to its shareholders by a selling corporation >erger and consolidationCorporation LawVII. Merger and Consolidation7o Constitute a transfer of the property and business of one corporation to another in e5changefor securitiesissuedbytheabsorbingcorporationtotheshareholdersof theabsorbedcorporation o 'utomatic assumption of the liabilities of the absorbed corporation Sale of assets of corporationo There must be us2cient funds reser!ed by the absorbed corporation to pay its liabilitiesotherwise the sale may be attac+ed by the creditors as a fraudulent con!eyance possiblyin!o+ing both corporations in litigationo :ssunce of stoc+ by the purchasing corporation as consideration for the assets ac(uired isnot an e5empt transaction under the @e!ised Securities 'ct 0unli+e in merger4consolidation1o @egistrationwithS9CwouldbenecessarypriortothetransactionunlessS9C e5ceptsitwhereit6ndsthatregistrationisnotnecessaruinthepublicinterest dietothelimitedcharacter of the public o%ering 'bsorbing corporationo >ay foresee problems in securing stoc+holders, appro!alo :n granting the appraisal right of dissenters it may decide that its purchase of the assets ofthe absorbed corporation would be more con!enient and practical than mergerExchange of stock The ac((uisition of all or substnatially all of the stoc+s of one corporation from its stoc+holders ine5changefor thestoc+ of theac(uiringcorporation thus ma+ingall or substantiallyall thestoc+holders of the Jac(uiredK corporation stoc+holders of the ac(uiring corporation 95change not yet consummatedo Theac(uiredcorrpoationisnotdirectlyin!ol!edinthetransaction whichispurelyonebetween its indi!idual stoc+holders and the ac(uiring corporation 95change consummatedo 'c(uired corporation becomes a subsidiary of the ac(uiring 0parent1 corporation Aoes not combine the two corporationso Eut fromthepoint of !iewof theac(uiring0parent1 corporation thereis hardlyanydi%erencebetweenowningtheac(uiredcorporation,sbusinessdirectlyandoperatingitthrough a controlled subsidiaryo The parent corporation would ha!e the power to buy all the subsidiary,s assets and dissol!eit achie!ing the same result as in the other methods of combination The rights of stoc+holders who refuse to sell their shares to the ac(uiring corporation would dependon whether the parent decides to retain the ac(uired corrpoation as a subsidiary or merges with itor buys all its assetso :n cases of merger or sale of assets Procedure laid down by the Code must be followed The non3selling stoc+holders who ob.ect to the merger or the sale would then ha!ethe same rights as the dissenting stocholders in a merger or sale of the assets mostimportant of which is the appraisal right ;here subsidiary retians its personalityo /on3selling stoc+holder may be ad!ersely a%ected by the shift of controlto th eac(uring0parent1 corporation E-Thewill ha!enoappraisal right sinceit is not oneof thoseinstances where the law gi!es it to him >ethod not co!ered by any pro!ision in the Corporation Codeo :n the absence of a !alid contractual restriction a stoc+holder of a corporation can sell hisshares to another corporation and the latter can purchase stoc+so The controlling group in a corporation owes some duty of loyalty to the corporation and totheminority andshouldthey!iolatethisdutybysellingtheirsharesinbadfaithorinconni!ance with others to destroy the corporation they can be held liable for damages