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Remedies

Remedies. Part 3. Case Rules. Thomas & Betts: Shareholders have a right to inspect the books only upon a proper showing of purpose; and the court has wide latitude to define the parameters of that right, based upon the facts of the particular case. . Remedies for Violations.

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Remedies

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  1. Remedies Part 3

  2. Case Rules • Thomas & Betts: Shareholders have a right to inspect the books only upon a proper showing of purpose; and the court has wide latitude to define the parameters of that right, based upon the facts of the particular case.

  3. Remedies for Violations • 1. Regulation D: register for IPO, exemptions: SEC can deregister a company, require amended S1 form with corrected information; cancel or terminate the offering; and impose fines on co or principal persons where trading has occurred = to 3 times the profit or $1,000,000. -S1: registration is effective 20 days after it is filed -Regulation 230.502 Requires that securities must be registered before they can be resold after initial purchase.

  4. Remedies 2. Dilution of Interest: Preemptive right of the company to acquire shares does not apply to stock given as compensations per MBCA Section 6.30 (b)(3). Does apply to options as well as stock purchases. 3. Violations of fiduciary duty: Fired if officer, removed from board; turn over profits or constructive trust on assets.

  5. Remedies 4. Insider trading: Civil penalties under 10 b, private direct action for damages; derivative action for breach of duty, Section 21 provides SEC can impose penalties can be 3 times profit or loss avoided OR vs controlling persons $1,000,0000 or 3 times profit. Removed from the board -duty to disclose or correct public statements 5. Proxy regulation: Failure to comply with the rules can result in excluding the proposal, or request No action Letter, i.e., SEC will take no action vs the company. Enjoin meeting, file corrected statement, invalidate vote. -request for proxy list- response w/in 5 days and include list of no. holders, type and class of stock, and cost of mailing. -(if hostile action) or bd refuses to include then can sue for the list and send out information to shareholders. Must front the cost but if successful, will control the board and can seek reimbursement.

  6. Remedies 6. Shareholder proposals- Only 1 proposal/shareholder. Proposals have to be received within 4 mo OR if the date has moved by more than 30 days then within a reasonable time. 7. Exclude proposals that include false or misleading information. Include proposals if SEC believes should be includable-Denies No Action Letter. 8. Regulation FD (Fair Disclosure)- if make selective disclosure to analysts privately, then must publicly disclose the information. Disclosure via press release , wire service, email is required if intentional then simultaneously, or unintentional then make prompt disclosure. Can also file statement with SEC. -if the information was included in a public statement, e.g. annual report then not material non-public, BUT if you change what was included in statement so private info would change then may require disclosure. -will not alone result in a 10b5 violation  -innocent snippets that aren’t material but allow a professional to figure it out may not be a violation.

  7. Obligations Under Sarbanes Oxley 9. Sarbanes-Oxley- Outside auditors must disclose non audit services rendered and that cannot provide audit and other non-audit services. -Services must be pre-approved by corporate management and audit committee. Accounting firms cannot provide book-keeping, accounting, and financial statements, fairness opinions, management functions, legal services and expert services. 10. Audit committee must have procedures for protection of whistleblowers and engage independent legal counsel. Sect 301. 11. CFO and CEO must certify financial statements that contain no material false statements or omissions. Failure to do so would render financial statements to be misleading.

  8. Voting on Matters-Changes to MBCA 1. Shareholders who will be affected by a proposed action get the right to vote on the proposals, e.g. merger, co that will cease to exist. So shareholders of a share for share merger, both corporations have the right to vote. Surviving shareholder do not vote. Sec. 6.21f, Corporation can merge with LLC, or non-corporate but adverse tax consequences. Sec 11.04 2. Shareholder voting is permitted if no disinterested board. To ratify actions. 3. Shareholder vote required for sale of 25% of assets if the company cannot function thereafter (changes substantially all of the asset requirements.) 4. Dissenter rights available for fundamental changes. Even if cannot vote, can still get appraisal remedy. Applies if shares are exchanged. 5. If you can vote, then can get appraisal remedy. 6. Exception is were there is a market for shares, then can sell your shares.

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