Question

Mario Bonsetti and Rico Sanchez incorporated Gnarly Vulcan Gear, Inc. (GVG), to manufacture windsurfing equipment. Bonsetti owned 60 percent and Sanchez owned 40 percent of the corporation’s stock, and both men served on the board of directors. Hula Boards, Inc., owned solely by Mai Jin Li, made a public offer to buy GVG stock. Hula offered 30 percent more than the market price per share for the GVG stock, and Bonsetti and Sanchez each sold 20 percent of their stock to Hula. Jin Li became the third member of the GVG board of directors.

An irreconcilable dispute soon arose between Bonsetti and Sanchez over design modifications of their popular Baked Chameleon board. Sanchez and Jin Li voted to merge GVG with Hula Boards under the latter name, despite Bonsetti’s dissent. GVG was dissolved, and production of the Baked Chameleon ceased.

1. A) What rights does Bonsetti have (in most states) as a minority shareholder dissenting to the merger of GVG and Hula Boards? B) Explain.

2. A) Could the parties have used a short-form merger procedure in this situation? B) Why or why not? Explain.

3. What is the term used for Hula's offer to purchase GVG stock?

4. A) By what method did Hula acquire control over GVG? B) Explain.

5. Suppose that after the merger, a person who was injured on a baked Chameleon board sued Hula (the surviving corporation). A) Can Hula be held liable for an injury? B) Why or why not? Explain.

Answer 1

1.

Ans:- Bonsetti have an appraisal right as a minority shareholder dissenting to the merger of GVG and Hula Boards. When a dissenting shareholder disagrees with the mergers of a company, they can claim for appraisal rights where the shareholder will be entitled to their share and get paid for the fair market value.

2.

Ans:-No, short-term merger procedure is not possible in this situation because it is only possible when 90% of the outstanding shares of the subsidiary’s stock are owned by the parents but in this case, the company is not in a parent-subsidiary relationship, thus short-form mergers are not possible.

3.

Ans:-The term used for Hula’s offer to purchase GVG stock is a tender offer.

4.

Ans:-Hula acquired control over GVG by providing a tender offer to all the shareholders of the target company’s shareholders by attempting to buy the stock they hold and thus gain control of the targets.  

5.

Ans:-Yes, after the mergers Hula can be held reliable if a person was injured on a baked chameleon because Hula is the surviving corporation that has acquired and taken over all the merger’s property and assets so all the stocks come under Hula, hence becomes liable of any disappearing company’s debts and obligations.