Shareholder Information Rights: Inspection, Purpose, and Rights

1. Jackson Pollock, “Convergence” (1952)

2. 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

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

4. 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

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

6. 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

7. 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

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

9. Saito v. McKesson HBOC, Inc. (Del 2002) • A stockholder who demands inspection for a proper purpose should be given access to all of the documents in the corporation’s possession, custody or control, that are necessary to satisfy that proper purpose. • Thus, where a §220 claim is based on alleged corporate wrongdoing, and assuming the allegation is meritorious, the stockholder should be given enough information to effectively address the problem • Documents related to actions before purchase of stock: OK, Sh not limited to information that could be used in derivative suit (Sh talks to board, makes proposal, anyway possible “continuing wrong”) • Documents from third-parties: OK, so long as “in possession” of corporation and related to purpose to investigate possible wrongdoing • Documents of wholly-owned subsidiary: OK, but only if given to corporation [statute revised: if parent “controls” subsidiary, unless agreement w/ sub of sub’s SOI] • Reframe purpose? Chapter 15 Shareholder Information Rights

10. Further questions: • Is “books and records” inspection like FOIA? like Rule 34 document request? • 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? Need parties’ permission? Seek 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

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

12. 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

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

14. 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

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

16. 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. Chapter 15 Shareholder Information Rights

17. Pop quizInspection rights Chapter 15 Shareholder Information Rights

18. 4. Del. shareholders can obtain third-party documents: • Only with permission of third party • If corporation has control of document • Even if the document has attorney-client material • 5. Under the MBCA, shareholders seeking inspection: • Have “holding period” and “quantity” requirements • Have access to “books and records” as in Delaware • Need not show a purpose • Beneficial owners are • Investors who own shares on behalf of another • Investors whose shares are owned by another • Trusts and estates • Del. shareholders have a right to obtain from the corporation a list of shareholders if … • The corporation maintains such a list • The shareholder has a proper purpose • The Sh owns more than 1% • Del. shareholders have a right to inspect corporate documents: • If specified in the articles • If the shareholder has a proper purpose • If Sh owns more than 1% • A “proper purpose” is one related to the shareholder’s interest in … • a voting insurgency to install CSR board • deciding whether to sell • bringing a derivative suit Answers: 1-b / 2-b / 3-abc / 4-b / 5-a / 6-b Chapter 15 Shareholder Information Rights

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

20. March 1, 2014 • Dear GE shareholder: • Please sign this proxy card for the upcoming shareholders' meeting at 9:00 am on April 23, 2014 in Chicago, Illinois. • * * * • I hereby appoint Jeffrey Immelt as my proxy, at the upcoming 2014 annual meeting, to vote in his discretion all my GE shares as if I were at the meeting. • _____________________  __________ • Signature  Date  Is this legal? • State law? • Federal law? Chapter 15 Shareholder Information Rights

21. MBCA § 7.22 Proxies. • A shareholder may vote his shares in person or by proxy. • A shareholder or his agent or attorney-in-fact may appoint a proxy to vote or otherwise act for the shareholder by signing an appointment form, or by an electronic transmission. An electronic transmission must contain or be accompanied by information from which one can determine that the shareholder, the shareholder's agent, or the shareholder's attorney-in-fact authorized the transmission. • An appointment of a proxy is effective when a signed appointment form or an electronic transmission of the appointment is received by the inspector of election or the officer or agent of the corporation authorized to tabulate votes. An appointment is valid for 11 months unless a longer period is expressly provided in the appointment form. Chapter 15 Shareholder Information Rights

22. MBCA § 7.05 Notice of Meeting. (a) A corporation shall notify shareholders of the date, time, and place of each annual and special shareholders' meeting no fewer than 10 nor more than 60 days before the meeting date. Unless this Act or the articles of incorporation require otherwise, the corporation is required to give notice only to shareholders entitled to vote at the meeting. Chapter 15 Shareholder Information Rights

23. 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 Shs – if directors to be elected Chapter 15 Shareholder Information Rights

24. On Mar 15, 2014, Vanguard Brokerage Services, Inc sent one of its customers the following email:    Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting 2014 GENERAL ELECTRIC COMPANY Annual Meeting of Stockholders MEETING DATE: April 23, 2014 For Holders as of: February 24, 2014 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/ar2013 Chapter 15 Shareholder Information Rights

25. Proxy Card Chapter 15 Shareholder Information Rights

26. Proxy Card Chapter 15 Shareholder Information Rights

27. Proxy Card Chapter 15 Shareholder Information Rights

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30. Notice / Proxy Statement • State law? • Federal law? • Governance • Election of directors • Corporate governance • Board of directors / committees • Directors’ compensation • Executive compensation • Management proposal #1 • Compensation D&A • Committee report • Audit committee • Management proposal #2 • Committee report • Shareholder proposals • Additional information Chapter 15 Shareholder Information Rights

31. Annual report Chapter 15 Shareholder Information Rights

32. Chapter 15 Shareholder Information Rights

33. 2007 GE management 2011 2009 2012 2013 Chapter 15 Shareholder Information Rights

34. Board of directors … Chapter 15 Shareholder Information Rights

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

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

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

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

39. Board of directors (2012) Chapter 15 Shareholder Information Rights

40. Board of directors (2013) Chapter 15 Shareholder Information Rights

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

43. The results, please …. Chapter 15 Shareholder Information Rights

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49. “Scavenger hunt” [questions] [answers Odd = T / Even = F] Chapter 15 Shareholder Information Rights

50. The end Chapter 15 Shareholder Information Rights