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Stockholder Demand Inspection Corporate Books

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					                          Module VI – Corporate Governance


                            Chapter 15
                   Shareholder Information Rights
                    • 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)
Corporations:                               Chapter 15                          Slide 1
A Contemporary Approach            Shareholder Information Rights                 of 34
         Vote                                              Voice


                           Inspection
                             Rights



          Sue                                              Sell
Corporations:                      Chapter 15                      Slide 2
A Contemporary Approach   Shareholder Information Rights             of 34
                               Del GCL § 220
                      Inspection 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. …

(b)   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. * * *

(c)   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.

Corporations:                             Chapter 15                         Slide 3
A Contemporary Approach          Shareholder Information Rights                of 34
           Search for “proper purpose” …

                            Antiwar activist
                          Shareholder activist




Corporations:                        Chapter 15              Slide 4
A Contemporary Approach     Shareholder Information Rights     of 34
                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”

                                                                   Anti-personnel
                                                               fragmentation bombs
                          Reframe purpose?


Corporations:                          Chapter 15                                Slide 5
A Contemporary Approach       Shareholder Information Rights                       of 34
                          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?



Corporations:                              Chapter 15              Slide 6
A Contemporary Approach           Shareholder Information Rights     of 34
                           Saito v. McKesson HBOC, Inc.
                                        (Del 2002)
Before:

                                                         merger
                              McKesson                             HBO


After:                                              McKesson
                Public                               HBOC
             Shareholders

                 Plaintiffs
                  (Saito)
                                                         HBO
 Corporations:                             Chapter 15                    Slide 7
 A Contemporary Approach          Shareholder Information Rights           of 34
            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?


Corporations:                             Chapter 15                         Slide 8
A Contemporary Approach          Shareholder Information Rights                of 34
                          Who is “stockholder”?

                              “Street name” ownership
                          Financially “encumbered” shares




Corporations:                              Chapter 15              Slide 9
A Contemporary Approach           Shareholder Information Rights     of 34
                              Del GCL § 220
                    Inspection 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. …

(b)   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. ***

(c)   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.

Corporations:                          Chapter 15                            Slide 10
A Contemporary Approach       Shareholder Information Rights                    of 34
                                Shareholders
                                  • NOBO
                                • Non-NOBO



                             Broker-Dealer

“NOBO list”
                            Depositary Trust Co.
                               (CEDE & Co)
                 “CEDE
               breakdown”
                                                             “Record list”
                               Corporation

 Corporations:                       Chapter 15                              Slide 11
 A Contemporary Approach    Shareholder Information Rights                      of 34
             Deephaven Risk Arb v. UnitedGlobalCom
                          (VC Parsons, Del Ch 2004)


                                                                    Shareholders
  “Deephaven was net short 4.6
  MM shares.”                                                    buy      sell
                                                               (long)   (short)
  “A stockholder is required only
  to provide documentary                                       Deephaven            Brokers
  evidence of beneficial
  ownership.”                                                              borrow

  “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                                   UnitedGlobalCom
  stock, options, derivatives.”


Corporations:                          Chapter 15                                      Slide 12
A Contemporary Approach       Shareholder Information Rights                              of 34
              Different under the MBCA …




Corporations:                      Chapter 15              Slide 13
A Contemporary Approach   Shareholder Information Rights      of 34
                      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) ...
     (1) Records of any final action taken with or without a meeting by the board of
         directors, or by a committee of the board of directors while acting in place of the
         board of directors on behalf of the corporation,
     (2) Accounting records
     (3) The record of shareholders;

(c) A qualified shareholder may inspect and copy the records described in subsection (b)
    only if:
     (1) His demand is made in good faith and for a proper purpose;
     (2) 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.


Corporations:                              Chapter 15                                 Slide 14
A Contemporary Approach           Shareholder Information Rights                         of 34
                           Proxy regulation

                                State law (notice)
                          Federal law (“proxy solicitation”)




Corporations:                              Chapter 15              Slide 15
A Contemporary Approach           Shareholder Information Rights      of 34
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 2010 annual meeting, to vote in his
discretion all my GE stock as if I were at the
meeting.                                                   Is this legal?
                                                           • State law?
_____________________ __________                           • Federal
Signature              Date                                    law?




Corporations:                      Chapter 15                          Slide 16
A Contemporary Approach   Shareholder Information Rights                  of 34
                  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



Corporations:                              Chapter 15                      Slide 17
A Contemporary Approach           Shareholder Information Rights              of 34
On Mar 16, 2010, 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

                                   2010 GENERAL ELECTRIC COMPANY
                                      Annual Meeting of Stockholders

MEETING DATE: April 28, 2010
For Holders as of: March 1, 2010
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

The relevant supporting documentations can also be found at the following Internet site(s):
     Annual Report - http://www.ge.com/annualreport
     Proxy Statement - http://www.ge.com/proxy



 Corporations:                                   Chapter 15                                         Slide 18
 A Contemporary Approach                Shareholder Information Rights                                 of 34
                          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


Corporations:                          Chapter 15              Slide 19
A Contemporary Approach       Shareholder Information Rights      of 34
                            Annual report
Dear Fellow Owners,

   Time magazine called this era “The Decade
   From Hell,” and “when you are going through
   hell,” Winston Churchill advised, “keep going.”
   We suffered one of the worst global economic
   downturns in history. The banking system
   teetered on the abyss. The financial sector
   suffered losses that will exceed $3 trillion.
   Unemployment surpassed 10% in the United
   States and rose even higher in many parts of
   the world. world. Asset prices across key
   segments plummeted. People lost faith in the
   principles of free markets and their power to
   create wealth and opportunities



  Corporations:                         Chapter 15              Slide 20
  A Contemporary Approach      Shareholder Information Rights      of 34
Corporations:                      Chapter 15              Slide 21
A Contemporary Approach   Shareholder Information Rights      of 34
Corporations:                      Chapter 15              Slide 22
A Contemporary Approach   Shareholder Information Rights      of 34
                          GE management

                                                              2009




                   2007




Corporations:                         Chapter 15                     Slide 23
A Contemporary Approach      Shareholder Information Rights             of 34
                  Board of directors …




Corporations:                      Chapter 15              Slide 24
A Contemporary Approach   Shareholder Information Rights      of 34
                          Board of directors
                                     (2008)




Corporations:                         Chapter 15              Slide 25
A Contemporary Approach      Shareholder Information Rights      of 34
                          Board of directors
                                     (2009)




Corporations:                         Chapter 15              Slide 26
A Contemporary Approach      Shareholder Information Rights      of 34
                          Board of directors
                                     (2010)




Corporations:                         Chapter 15              Slide 27
A Contemporary Approach      Shareholder Information Rights      of 34
                            GE – Board (2010)
Director                   Outside/Inside      Background                           Since
W Geoffrey Beattie               O             CEO, Woodbridge Co (Toronto)          2009
James I Cash                     O             Emeritus Prof, Harvard MBA            1997
Sir William M Castell          O (?)           Former GE Healthcare                  2004
Ann M Fudge                      O             Former CEO, Young & Rubicam           1999
Claudio X Gonzalez               O             CEO, Kimberley-Clark Mexico           1993
Susan Hockfield                  O             President, MIT                        2006
Jeffrey R Immelt            I – not inde       CEO, GE                               2000
Andrea Jung                      O             CEO, Avon Products                    1998
Alan Lafley                      O             CEO, Procter & Gamble                 2002
Robert W Lane                    O             CEO, Deere & Company                  2005
Ralph S Larsen                   O             Former CEO, Johnson & Johnson         2002
Rochelle B Lazarus               O             CEO, Oglivy & Mather                  2000
James Mulva                      O             CEO, ConocoPhillips                   2008
Sam Nunn                         O             CEO, Nuclear Threat Initiative        1997
Roger S Penske                 O (?)           Chair Penske Truck Leasing            1994
Robert L Swearinga               O             Prof (ex-Dean), Cornell Accounting    2002
Douglas A Warner                 O             Former Chair, JP Morgan               1992
 Corporations:                            Chapter 15                                Slide 28
 A Contemporary Approach         Shareholder Information Rights                        of 34
Corporations:                      Chapter 15              Slide 29
A Contemporary Approach   Shareholder Information Rights      of 34
           The envelope, please ….


                                       http://www.ge.com/

             http://www.ge.com/investors/financial_reporting/index.html

                          Form 8-K (May 4, 2010) - Item 5.7 Voting results




Corporations:                                  Chapter 15                    Slide 30
A Contemporary Approach               Shareholder Information Rights            of 34
                          The end




Corporations:                      Chapter 15              Slide 31
A Contemporary Approach   Shareholder Information Rights      of 34
     Management
               (2006)




Corporations:                      Chapter 15              Slide 32
A Contemporary Approach   Shareholder Information Rights      of 34
     Management
               (2007)
                          To our investors

Corporate Executive Council




Corporations:                          Chapter 15              Slide 33
A Contemporary Approach       Shareholder Information Rights      of 34
                                                           Board of
                                                           directors
                                                            (2006)




Corporations:                      Chapter 15                          Slide 34
A Contemporary Approach   Shareholder Information Rights                  of 34
                            Board of
                            directors
                                 (2007)




Corporations:                      Chapter 15              Slide 35
A Contemporary Approach   Shareholder Information Rights      of 34
                 Management team …




Corporations:                      Chapter 15              Slide 36
A Contemporary Approach   Shareholder Information Rights      of 34
       Management
                 (2008)
                                       To our investors


Corporate Executive Council




  Corporations:                        Chapter 15              Slide 37
  A Contemporary Approach     Shareholder Information Rights      of 34
      Management
                (2009)



                                                              Dear fellow owners,

                                                              2008 was a tough year
                                                              and we expect 2009
                                                              to be even tougher .




Corporate Executive Council – not shown

 Corporations:                        Chapter 15                                    Slide 38
 A Contemporary Approach     Shareholder Information Rights                            of 34

				
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