Protagenic Therapeutics Inc. (PTIX)

[FeelTheNoise]

Possible Litigation Scenarios should be stickied, IMO. I think this is a great article:

http://www.thefreelibrary.com/Considering+going+dark%3F+A+company+choosing+to+delist+and+deregister...-a0155144350

To summarize, it shows:
A) Why companies do have legitimate reasons to go dark.
B) What can be done, and HAS been done, if the companies screw the shareholders over.

These are their RISKS of going dark. I bolded a couple particularly poignant point:

Litigation Risks of Going Dark

Unlike leveraged buyouts, management buyouts or tender offers, ordinary company deregistrations are not heavily litigated. The fact that deregistering issuers likely will suffer a marked decline in share price, however, creates the potential for litigation, and courts may be receptive to deregistration claims.

For example, while Delaware case law does not expound on a director's fiduciary duties when adopting and executing a going-dark plan, a few cases indicate that a company's directors may breach their duties in pursuing such a plan if they do so for self-interested purposes.

In Hamilton v. Nozko, the court reasoned that corporate action, even where legally permissible, may be forbidden if it's taken for an inappropriate purpose.

Similarly, the court in Seagraves v. Urstadt Property Co. Inc. observed that it is not improper to delist shares. Nonetheless, it allowed the plaintiffs to go forward, alleging that the defendant directors had delisted for an inequitable purpose. Again, in Schnell v. Chris-Craft Industries Inc., the opinion reflected that inequitable action does not become permissible simply because it is legally possible.

If a case is filed, however, then the business judgment rule should apply. Delaware law recognizes the power of a corporation's directors, in a proper exercise of their business judgment, to cause the company to take steps that may result in delisting and deregistration of the company's securities. The Hamilton case noted this power, observing that directors exercising business judgment can incidentally cause delisting and deregistration that might adversely impact the market for the company's securities.

Actions for Reducing Litigation Risks

The following recommended actions should help company officers and directors invoke the protections of the business judgment rule when they approve a "going dark" plan:

* Review the company's certificate or articles of incorporation and bylaws to ensure that delisting and/or deregistration is not somehow limited by these documents (requiring a shareholder vote);

* Form a Special Committee of independent directors to review and approve the plan;

* Because courts can only evaluate a Special Committee's decision by evaluating the adequacy of its processes, extensively document the directors' consideration of the plan in the committee meeting minutes and demonstrate that the committee was adequately informed;

* Establish a clear business purpose supporting the plan, which will most likely be the cost savings of going dark (increased D & O insurance, director compensation, audit and legal expenses, software expenses, outsourcing costs and lost productivity);

* Obtain independent research supporting the cost savings afforded by the plan, including the opportunity cost of lost productivity suffered because of compliance efforts, and quantify the benefit of the cost savings for the company (impact on EPS);

* Ensure that the plan benefits all shareholders and, if not all shareholders have equal rights, that the plan addresses the rights of shareholders that may be disproportionately affected;


* Ensure that no direct or indirect benefits flow to any director or officer as a result of the committee's adoption of the plan; and


* Closely monitor the veracity of the company's public disclosures and communications with shareholders regarding this process, ensuring that such disclosures and communications are thorough, complete and factually supported.