Control of Corporation

Question 1

Tender Offer

Answer 1

Offer by a bidder to shareholders of a target corp. asking shareholders to tender their shares in exchange for either cash or securities. Set price typically above market value, set time, needs approval by board & shareholders. May be friendly or hostile.

Question 2

Poison Pill

Answer 2

Device adopted by takeover target to make stock less attractive to bidder. Flip in: allows existing shareholders of target corp. to purchase additional shares at a bargain price. Flip over: allows existing holder to convert into acquirer’s shares at a bargain price in the event of an unwelcome merger.

Question 3

Shareholder Voting

Answer 3

Generally have right to vote on: 1) election & removal or directors 2) amendments to the articles/bylaws 3) major corp. action or fundamental changes.

Question 4

Shareholder Meetings

Answer 4

Shareholders have right to attend shareholder meetings and vote on issues.

Question 5

Proxy

Answer 5

A power granted by a shareholder to another person to exercise the shareholder’s voting rights. Proxy holder normally an agent, sometimes proxy holder has independent interest in subject matter of proxy. Must be in writing. Generally revocable at any time.

Question 6

Proxy Solicitations

Answer 6

Typically management of a publicly held corp. solicits proxies from the shareholders both for reelection of directors and to approve various types of actions that require shareholder approval. Shareholders may solicit proxies from other shareholders and management mut include in proxy statement, proposals made by shareholders.

Question 7

Costs of Proxy Solicitations

Answer 7

Directors running for election have to pay unless otherwise specified in bylaws. Corp. may pay normal expense of preparing/soliciting proxies to obtain a quorum. In event of proxy fight, corp. may properly reimburse reasonable amounts spent by management as long as matter is one of corp. policy. Insurgents do not have a right to reimbursement of proxy expenses even if they win.

Question 8

Shareholder Proposal

Answer 8

Shareholder may serve notice on mgmt. of intent to propose action at shareholder meeting, instead of independently soliciting proxies. Shareholder may only propose such actions if: he would be entitled to vote and he is a shareholder at time proposal is submitted. If notice of proposed action conforms to proxy rule, mgmt. must include the proposal and send it out w/statement. Mgmt. may omit if proposal: a) not a proper subject for action by shareholders b) relates to ordinary business operations c) submitted for a non-corporate purpose.

Question 9

Shareholder Inspection Rights

Answer 9

Under federal proxy rule, a security holder/tender offeror may insist that issuer either provide w/list of security holders or mail communications to them at holder’s expense. Qualified shareholders allowed, when in good faith, to inspect a corp. stock register.

Question 10

Shareholder Voting Control

Answer 10

Corp. has right to establish classes of stocks in regards to preferential distribution of corp. assets. Shareholder’s right to vote is guaranteed and must be in proportion to number of shares possessed.

Question 11

Private Actions for Proxy Rule Violations

Answer 11

Proxy rules create an implied right of action in the individual investor.