Shareholder Activism/Shareholder Litigaton

Question 1

Which of the following is/are likely to be filed as derivative suits?

1. the board of directors grants the corporation’s CEO a very generous lifetime employment contract
2. the corporation’s board of directors issues new stock, but denies existing shareholders their right to purchase the new stock before new shareholders
3. the corporation does not pay a dividend, despite record profits
4. all of the above
5. 1 and 2 only

Answer 1

all of the above

Question 2

Under the Delaware Court of Chancery rules, a plaintiff shareholder in a derivative suit must:

1. retain ownership of the shares throughout the litigation
2. make a pre-suit demand on the board
3. obtain court approval of any settlement
4. all of the above
5. 1 and 3 only

Answer 2

all of the above

Question 3

Why do shareholders in most derivative suits resist the pre-suit demand requirement?

Answer 3

because if they make a demand, the board of directors may formally say “no,” and the business judgment rule will protect that decision

Question 4

A suit in which shareholders sue on their own behalf to enforce their individual rights is known as a _______; a suit in which shareholders sue on behalf of the corporation to seek redress for a violation of fiduciary duties to the corporation is known as a _____.

Answer 4

direct suit; derivative suit

Question 5

The basic disclosure form that must be filed with the SEC by a corporation in which the corporation gives the shareholder the information that she needs to make an informed decision about a matter to be voted on at the annual shareholder meeting is called a:

Answer 5

proxy statement

Question 6

In Rosenfeld v. Fairchild Engine and Airplane Corp., which of the following were allowed to be reimbursed from the corporation’s coffers:

1. incumbent directors’ reasonable expenses incurred in good faith if they win
2. insurgent directors’ reasonable expenses if shareholders approve the reimbursement
3. incumbent directors’ reasonable expenses incurred in good faith if they lose
4. insurgent directors’ reasonable expenses incurred in good faith if they lose
5. 1, 2 and 3 only

Answer 6

1, 2, and 3 only

Question 7

In Long Island Lighting Co. v. Barbash, the court remanded with the following notion of proxy solicitation:

1. whether the challenged communication is targeted directly at shareholders
2. whether the challenged communication is a direct request for a proxy
3. whether shareholder activism in this circumstance would inflict a disproportionate cost on the corporation
4. whether the insurgents had received staff clearance from the SEC
5. whether the challenged communication, seen in the totality of the circumstances, is reasonably calculated to influence shareholders’ votes

Answer 7

whether the challenged communication, seen in the totality of the circumstances, is reasonably calculated to influence shareholders’ votes

Question 8

Financial intermediaries that invest other people’s money such as mutual funds, insurance companies, and pension funds are knowns as:

Answer 8

institutional investors

Question 9

A shareholder may vote her shares ______ at the annual _____.

Answer 9

in persion; shareholder meeting

Question 10

a derivative suit is filed on behalf of

Answer 10

the corporation

Question 11

a direct suit is filed on behalf of

Answer 11

the shareholders

Question 12

Class actions are ___ suits.

Answer 12

direct

Question 13

In a derivative suit, plaintiff shareholders must:

Answer 13

1. retain ownership of the shares throughout the litigation
2. Make pre-suit demand on the board
3. Obtain court approval of any settlement

Question 14

To meet the pre-suit demand requirement, shareholders must

Answer 14

state with particularity reasons for not obtaining the action or not making the effort

Question 15

If the shareholders don’t want to make a pre-suit demand, what is their other option?

Answer 15

plead demand futility