Random International, “Rain Room” (Expo 1: New York, 2013)

1. Chapter 1 Introduction to the Firm Random International, “Rain Room” (Expo 1: New York, 2013)

2. Module I – Fundamentals Chapter 2Corporation Basics Bar exam Corporate practice Corporation as “private constitution” Basic corporate vocabulary corporate categories corporate characteristics organic documents corporate actors corporate securities fiduciary duties (derivative suit) corporate law vs. other law Corporate powers change annual meeting equitable limitations Law profession Citizen of world Chapter 2 Corporation Basics

3. Why BusOrgs? Bar exam Corporate practice Law profession Citizen of world Chapter 1 Introduction to the Firm

4. Corporate hierarchies Shareholders Constitution Corporation as private constitution Corporate statute (judge-made law) Board of Directors Articles of Incorporation Corporation (officers) By-laws Chapter 2 Corporation Basics

5. “Exit, voice and loyalty” in political organizations are similar to “liquidity, voting and fiduciary duties” in the corporation. True or false? Public corporations are -- a. a type of non-profit corporation b. a type of private corporation c. a type of close corporation d. a corporation regulated only by federal law 3. Corporations MUST have: Separate identity Perpetual life Limited liability Centralized management (board of directors) Transferable shares 4. Shareholders have a right to liquidate their investment and sell their shares to the corporation. True or false? Pop quiz 1–T / 2–B / 3–A / 4–F Chapter 2 Corporation Basics

6. 5. Chancellor Bill Allen is just about the cutest jurist in the land. True or false? 6. The Model Business Corporate Act is – uniform statute adopted in most states ABA draft statute for states to adopt/revise as they choose modeled on the Delaware General Corporation Law 7. Corporate law is: Primarily judge-made law (see ALI Principles) A product of each state under choice of law principles Primarily concerned with defining rights of securities -- stock, debentures, bonds, preferred shares 8. The articles of incorporation (choose two): Trump corporate statutes Trump corporate bylaws Name the board of directors Must be filed with the secretary of state 1–T / 2–B / 3–B / 4–B, D Chapter 2 Corporation Basics

7. Corporate fiduciary duties … A corporation during WWII – with more business than it know what to do with -- spends $1 million to sponsor a “variety hour” radio program. One of the singers on the program is wife of the company’s board chair/ president. A shareholder claims the directors, in approving this expenditure, violated their fiduciary duties. Please analyze. Chapter 2 Corporation Basics

8. Corporate Fiduciary Duties • Bayer v. Beran, • (NY Sup. Ct 1944) Duty of care “[A director] is called upon to use care, to exercise judgment, the degree of care, the kind of judgment, that one would give in similar situations to the conduct of his own affairs.” Business judgment rule (BJR) “Questions of policy of management … are left solely to their honest and unselfish decision … and the exercise of them for the common and general interests of the corporation may not be questioned.” Duty of loyalty “[P]ersonal transactions of directors with the corporations … may tend to produce a conflict between self-interest and fiduciary obligation, are when challenged examined with the most scrupulous care.” Presumption for Presumption against Chapter 2 Corporation Basics

9. Enforcement of fiduciary duties … Derivative suit Class action Chapter 2 Corporation Basics

10. Derivative suit(enforce duties to corporation) Shareholder (lawyer) “on behalf of corporation” Corporation violation of corporate duties (recovery to corporation) Fiduciaries Chapter 2 Corporation Basics

11. Class action(enforce duties to shareholders) Sh rep (lawyer) “on behalf of class” Shareholder class violation of direct duties (recovery to shareholders) Corporation Insiders Chapter 2 Corporation Basics

12. With great power comes great responsibility … Setting the shareholders’ meeting date … Chapter 2 Corporation Basics

13. Schnell v. Chris-Craft Industries, Inc.(Del. 1971) What is a proxy insurgency? Shareholders Insurgent  Shareholders elect new board Board of directors Corporation Chapter 2 Corporation Basics

14. Insurgency timeline (1971) Oct 27 - Shareholder group learns of new meeting date Sep 17 - Shareholder insurgent group forms Oct 18 - Board meets and amends bylaws Dec 08 - Proposed new date for meeting (Cortland, NY) Jan 11 - Original date for meeting (bylaws) Sep Oct Nov Dec Jan Chapter 2 Corporation Basics

15. Power vs. Duty “… Management has attempted to use the corporate machinery and the Delaware Law for the purpose of perpetuating itself in office … for the purpose of obstructing the legitimate efforts of dissident stockholders … These are inequitable purposes, contrary to established principles of corporate democracy.” Schnell v. Chris-Craft Industries, Inc.(Del. 1971) Delaware Supreme Court (2009) Chapter 2 Corporation Basics

16. Delaware’s “product” Nov 10 - Chancery Court grants access to SH list Nov 18 - Chancery Court denies prelim injunc Oct 27 - Shareholder group learns of new meeting date Sep 17 - Shareholder insurgent group forms Oct 18 - Board meets and amends bylaws Nov 1 - Shareholder group files action Nov 29 - Sup Ct remands / postpone mtg Dec 08 - Proposed new date for meeting (Cortland, NY) Jan 11 - Original meeting date (bylaws) Sep Oct Nov Dec Jan Chapter 2 Corporation Basics

17. Stahl v. Apple Bancorporation, Inc.(Del. Ch. 1990) What is a tender offer? Shareholders (1) buy shares Hostile bidder Board of directors (2) elect new board Corporation Chapter 2 Corporation Basics

18. Takeover timeline (1986-90) 3/28/90 - Stahl starts TO @ $38 cash, provided gets bd majority 3/19/90 - Board fixes record date for April 17, but no mtg date 11/22/89 - Stahl proposes bylaw change and board-packing plan 9/86 - Stahl buys 20% of outstanding Bancorp shares 4/9/90 - Special bd mtg: finan advisors say TO is unfair; Bd withdraws record date to look for alternatives 11/7/86 - Stahl reaches 30.3% ownership 5/9/90 - Stahl sends out proxy materials 5/14/90 - Stahl seeks prelim injunc requiring SH mtg 1986 1989 1990 1991 Chapter 2 Corporation Basics

19. Power vs. Duty “Fiduciary duties constitute a network of responsibilities that overlay the exercise of even undoubted legal power.” “I cannot conclude that defendants have taken action for the purpose of impairing or impeding the effective exercise of the corporate franchise.” “Deferring this company’s annual meeting where no meeting date has yet been set and no proxies even solicited does not impair or impede the effective exercise of the franchise.” “Plaintiff has no legal right to compel the holding of the company’s annual meeting or right in equity to require the board to call a meeting now.” Stahl v. Apple Bancorporation, Inc.(Del. Ch. 1990) Chancellor William Allen Chapter 2 Corporation Basics

20. Reconcile the cases … Schnell: board has power -- but it’s inequitable for board to change meeting date and impede voting insurgency Stahl: board has power -- and it’s equitable for board to not set meeting date in face of insurgency/tender offer Chapter 2 Corporation Basics

21. The end Chapter 2 Corporation Basics