Both-Sides Dealing Invites Derivative Suits

“ADVICE: If it becomes tempting to have dealings between companies in which you are interested in both sides, avoid it ifyou possibly can. If it is a matter ofgreat importance to all concerned, be sure to have ratification of any transaction—preferably prior to the completion of the transaction—by the stockholders of both companies. Otherwise, you may be subjected to this kind of minority stockholder suit.”

“ADVICE: Ifyou've raised capital with a public offering, be certain that you review frequently your statement of business purposes to avoid the careless mistake we made in the Bevis case. After the derivative action was brought, we even went to the expense of calling a special meeting of the Narragansett stockholders to give us retroactive approval of the transaction. Even though we got overwhelming approval, the court refused to dismiss the case. If we had not obtained the assistance of Abe Pomerantz in dealing with Mr. Garwin, this action could have been far more expensive. If we had not settled the case, the directors and officers could have been found guilty of hav- ing violated one of the i(Stated Business Purposes" in the original registration statement, and would have been required to pay the company $2 million. The Bevis investment was a dilly! In derivative suits it is usually advisable to make a reasonable court-ap- proved settlement that permits the corporate defendants to have the company reimburse them for all legal expenses. Otherwise you run the risk of having to pay not only the judgment but also all your legal expenses out ofyour own pocket.”