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Chapter 15 Shareholder Information Rights

Module VI – Corporate Governance. Chapter 15 Shareholder Information Rights. Bar exam. Corporate practice. Law profession. Inspection rights Procedure Qualified shareholder Expedited court review Proper purpose ~ SWM Proper shareholder State law Notice Duty of disclosure

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Chapter 15 Shareholder Information Rights

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  1. Module VI – Corporate Governance Chapter 15Shareholder Information Rights Bar exam Corporate practice Law profession Inspection rights Procedure Qualified shareholder Expedited court review Proper purpose ~ SWM Proper shareholder State law Notice Duty of disclosure Federal law Proxy regulation Proxy antifraud rule Private cause of action Elements: materiality, culpability, causation Remedies (rescissionary damages) Citizen of world Chapter 15 Shareholder Information Rights

  2. Vote Voice Inspection rights Sue Sell Chapter 15 Shareholder Information Rights

  3. Del GCL § 220Inspection of books and records. • As used in this section: (2) "Stockholder" means a holder of record of stock in a stock corporation, or a person who is the beneficial owner of shares of such stock held either in a voting trust or by a nominee on behalf of such person. … • Any stockholder [in person or through lawyer/agent] … shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose, and to make copies and extracts from … corporation's stock ledger, a list of its stockholders, and its other books and records. … A proper purpose shall mean a purpose reasonably related to such person's interest as a stockholder. * * * • Where the stockholder seeks to inspect the corporation's … list of stockholders and establishes that such stockholder is a stockholder and has complied with this section …, the burden of proof shall be upon the corporation to establish that the inspection such stockholder seeks is for an improper purpose. Chapter 15 Shareholder Information Rights

  4. Search for “proper purpose” … Antiwar activist Shareholder activist Chapter 15 Shareholder Information Rights

  5. State ex rel Pillsbury v. Honeywell Inc.(Minn 1971) “The power to inspect is the power to destroy” “Pillsbury had utterly no interest in Honeywell before he learned about its production of fragmentation bombs” “We do not mean to imply that a shareholder with a bona fide investment intent could not bring this suit” Reframe purpose? Anti-personnel fragmentation bombs Chapter 15 Shareholder Information Rights

  6. Questions unanswered: • Can a shareholder have a purpose other than SWM? • Would the result have been different if Mr. Pillsbury alleged he was trying to save corporate image? Potential lawsuits? • What result if Pillsbury seeking information on APFB, rather than shareholder list? Chapter 15 Shareholder Information Rights

  7. Saito v. McKesson HBOC, Inc. (Del 2002) Before: McKesson merger HBO After: McKessonHBOC Public Shareholders Plaintiffs (Saito) HBO Chapter 15 Shareholder Information Rights

  8. Questions unanswered: • Is “books and records” inspection like FOIA? like Rule 34 document request? like SEC proxy statement? • When can shareholder seek “books and records” about a consummated merger? Are proper purposes mentioned by court all about SWM? • What third-party documents can be sought? Can they be sought directly from the third parties? • When can shareholder of parent corporation obtain documents about subsidiary? What if confidential? • Why not just leave Saito to discovery in the litigation he brought challenging the directorial lapses in the merger? Chapter 15 Shareholder Information Rights

  9. Who is “stockholder”? “Street name” ownership Financially “encumbered” shares Chapter 15 Shareholder Information Rights

  10. Del GCL § 220Inspection of books and records. (a) As used in this section: (2) "Stockholder" means a holder of record of stock in a stock corporation, or a person who is the beneficial owner of shares of such stock held either in a voting trust or by a nominee on behalf of such person. … • Any stockholder … shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose, and to make copies and extracts from … corporation's stock ledger, a list of its stockholders, and its other books and records. … A proper purpose shall mean a purpose reasonably related to such person's interest as a stockholder. *** • Where the stockholder seeks to inspect the corporation's … list of stockholders and establishes that such stockholder is a stockholder and has complied with this section …, the burden of proof shall be upon the corporation to establish that the inspection such stockholder seeks is for an improper purpose. Chapter 15 Shareholder Information Rights

  11. Shareholders • Shareholders • NOBO • Non-NOBO Broker-Dealer “NOBO list” Depositary Trust Co. (CEDE & Co) “CEDE breakdown” Corporation “Record list” Chapter 15 Shareholder Information Rights

  12. Deephaven Risk Arb v. UnitedGlobalCom(VC Parsons, Del Ch 2004) “Deephaven was net short 4.6 MM shares.” “A stockholder is required only to provide documentary evidence of beneficial ownership.” “To give effect to [company’s argument that Deephaven owed 8.6 MM shares to others] would force courts to determine shareholder’s position net of stock, options, derivatives.” Shareholders buy (long) sell (short) Deephaven Brokers lend UnitedGlobalCom Chapter 15 Shareholder Information Rights

  13. Different under the MBCA … Chapter 15 Shareholder Information Rights

  14. NC Bus Corp Act § 55-16-02 Inspection of records by shareholders. (b) A qualified shareholder of a corporation is entitled to inspect and copy ... any of the following records of the corporation if the shareholder meets the requirements of subsection (c) ... • Records of any final action … by the board of directors … (2) Accounting records (3) The record of shareholders (c) A qualified shareholder may inspect and copy the records described in subsection (b) only if: • His demand is made in good faith and for a proper purpose; • He describes with reasonable particularity his purpose and the records he desires to inspect; and (3) The records are directly connected with his purpose (g)  For purposes of this section a "qualified shareholder" of a corporation is a person who shall have been a shareholder in the corporation for at least six months immediately preceding his demand or who shall be the holder of at least five percent (5%) of the corporation's outstanding shares of any class. (*) * MBCA: not include 6 months or 5% thresholds Chapter 15 Shareholder Information Rights

  15. Proxy regulation State law (notice) Federal law (“proxy solicitation”) Chapter 15 Shareholder Information Rights

  16. Dear GE shareholder: • Please sign this proxy card so that management may conduct the upcoming shareholders' meeting. • I hereby appoint Jeffrey Immelt as my proxy, at the upcoming 2012 annual meeting, to vote in his discretion all my GE stock as if I were at the meeting. • _____________________  __________ • Signature  Date  Is this legal? • State law? • Federal law? Chapter 15 Shareholder Information Rights

  17. Federal regulation of PHC voting • “Public company” • Securities (debt or equity) listed on stock exchange • Securities (equity) – 500 holders + $10 million year-end assets • Deregistration: delisting or fall below 300 shareholders • “Proxy solicitation” • (1) request for proxy, (2) request against, (3) “reasonably calculated” • Second Circuit: part of continuous plan intended to end in solicitation • Federal proxy regulation • Form of proxy – not open-ended • Each matter: Yes-No-Abstain • Directors: For/Withhold (plurality voting) • Proxy statement – information on matters to be voted on • Annual report to shareholders – if directors to be elected Chapter 15 Shareholder Information Rights

  18. On Mar 15, 2012, at 5:20 AM, FIRSTRADE SECURITIES, INC (an online securities brokerage firm) wrote a GE shareholder the following email:    Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting 2012 GENERAL ELECTRIC COMPANY Annual Meeting of Stockholders MEETING DATE: April 25, 2012 For Holders as of: February 27, 2012 CUSIP NUMBER: 369604103 ACCOUNT NUMBER: #####448 CONTROL NUMBER: 106469577113 You can enter your voting instructions and view the shareholder material at the following Internet site.   http://www.proxyvote.com/0106469577113 [GO TO SITE} The relevant supporting documentations can also be found at the following Internet site(s): Proxy Statement - http://www.ge.com/proxy Annual Report - http://www.ge.com/annualreport Chapter 15 Shareholder Information Rights

  19. Proxy Statement What is the proxy statement? • State law? • Federal law? • Election of Directors • Corporate governance • Board of directors / committees • Compensation info • Compensation committee report • Audit committee • Independent auditor • Management proposals • Shareholder proposals Chapter 15 Shareholder Information Rights

  20. Annual report Chapter 15 Shareholder Information Rights

  21. 2007 GE management 2011 2009 Chapter 15 Shareholder Information Rights

  22. Board of directors … Chapter 15 Shareholder Information Rights

  23. Board of directors(2008) Chapter 15 Shareholder Information Rights

  24. Board of directors(2009) Chapter 15 Shareholder Information Rights

  25. Board of directors(2010) Chapter 15 Shareholder Information Rights

  26. Board of directors(2011) Chapter 15 Shareholder Information Rights

  27. GE – Board (2011) Chapter 15 Shareholder Information Rights

  28. Do you notice anything? Chapter 15 Shareholder Information Rights

  29. The annual meeting …. http://www.ge.com/investors/events/event_id04252012.html Form 8-K (April 30, 2012) - Item 5.7 Voting results Chapter 15 Shareholder Information Rights

  30. The end Chapter 15 Shareholder Information Rights

  31. Management(2006) Chapter 15 Shareholder Information Rights

  32. Management(2007) To our investors Corporate Executive Council Chapter 15 Shareholder Information Rights

  33. Board of directors(2006) Chapter 15 Shareholder Information Rights

  34. Board of directors(2007) Chapter 15 Shareholder Information Rights

  35. Management team … Chapter 15 Shareholder Information Rights

  36. Management(2008) To our investors Corporate Executive Council Chapter 15 Shareholder Information Rights

  37. Management(2009) Dear fellow owners, 2008 was a tough year and we expect 2009 to be even tougher . Corporate Executive Council – not shown Chapter 15 Shareholder Information Rights

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