BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 457
                                                                  Page  1

          Date of Hearing:   April 8, 2013

                       ASSEMBLY COMMITTEE ON BANKING AND FINANCE
                                 Roger Dickinson, Chair
                   AB 457 (Torres) - As Introduced:  February 19, 2013
           
          SUBJECT  :   Shareholders.

           SUMMARY  :   Eliminates the 10-day waiting period that currently  
          applies for reorganizations in which shareholders have the right  
          under dissenters' rights to demand payment of cash for their  
          shares.    

           EXISTING LAW  

          1)Authorizes certain actions that may be taken at any annual or  
            special meeting of shareholders to be taken with written consent  
            of the shareholders outside of a meeting under specific  
            requirements and circumstances.  [Corporations Code Section 603]

          2)Requires corporations to solicit the consent of all shareholders  
            or subject certain proposed corporate actions to a 10-day waiting  
            period.  [Corporations Code Section 603 (b)(1)]

          3)Prohibits shareholders with dissenters' rights from attacking the  
            validity of the transaction and it prohibits any suit for an  
            injunction to stop the reorganization.  [Corporations Code,  
            Section 1312 (a)]

           FISCAL EFFECT  :   None. 

           COMMENTS  :   

          Current law requires corporations to solicit the consent of all  
          shareholders or subject certain proposed corporate actions to a  
          10-day waiting period.   AB 457, eliminates the 10-day waiting  
          period which would only apply to California Dissenters' Rights law,  
          Chapter 13 of the Corporations Code, commencing with Section 1300.   
          Dissenters' rights permit non-consenting shareholders to seek a  
          fair market value determination with respect to its shares and  
          eliminate any right at law or in equity to attack the validity of a  
          reorganization.  

          According to the sponsor, the California State Bar, Business Law  
          Section, Corporations Committee, the 10-day waiting period "places  








                                                                  AB 457
                                                                  Page  2

          the consummation of the corporate action at unnecessary risk."  For  
          example, to a merger involving a corporation with one shareholder  
          who holds 95% of the outstanding shares, who has approved the  
          transaction, and with a large number of employee shareholders who  
          hold the remaining 5% by operation of an employee stock incentive  
          plan.  If this corporation wishes to close the transaction quickly  
          and have its shareholders approve the merger by written consent, it  
          will be required to either absorb the costs of soliciting the  
          consent of all shareholders or subject the closing of the  
          transaction to a 10-day waiting period. The 10-day waiting period  
          creates significant consummation risk for the parties even though  
          approval of the transaction is certain.  The additional period of  
          time provides an opportunity for new laws or regulations to be  
          enacted, for facts or circumstances to develop or exist that may  
          cause a material adverse effect to one of the parties or for the  
          conditions of the financial or credit markets to worsen, any of  
          which may change the landscape of the transaction and affect the  
          ability or obligation of a party to close. 

          Under existing law, time periods are already built into California  
          dissenters' rights laws, which will not be affected by this bill.   
          These time periods include: after shareholder approval of a  
          reorganization with dissenter' rights, the corporation would  
          continue to be subject to a 10-day period in which to notify  
          shareholders of the approval and provide them with copies of the  
          dissenters' rights statutes, a description of the procedure to be  
          followed and a statement of the price the corporation deems to be  
          fair market value of the shares, including an offer to buy the  
          shares at that price; dissenting shareholders would continue to  
          have 30 days to demand appraisal; and, dissenting shareholders  
          would continue to have six months in which to commence an appraisal  
          action in Superior Court.  

          Other states such as Delaware (which is known for being  
          corporation-friendly) and Nevada do not impose a 10-day waiting  
          period on any corporate action that is approved by written consent  
          of shareholders.  

           QUESTIONS  :

          The Legislature has made some significant changes to dissenters'  
          rights laws recently, through AB 1680 (noted below), considering  
          those changes just enacted last year, why is this change that may  
          hinder dissenters' rights happen now?  Is the deletion of the  
          10-day waiting period crucial?  Does the 10-day waiting serve as a  








                                                                  AB 457
                                                                  Page  3

          disincentive to corporations to incorporate in California?

          While Delaware and Nevada are noted for not having this  
          requirement, are these the only two states?  

          The sponsor contends that the "additional period of time provides  
          an opportunity for new laws or regulations to be enacted, for facts  
          or circumstances to develop or exist that may cause a material  
          adverse effect to one of the parties or for the conditions of the  
          financial credit markets to worsen, any which may change the  
          landscape of the transaction and affect the ability or obligation  
          of a party to close."  Was the 10-day waiting period created to  
          allow these occurrences?  

           PREVIOUS LEGISLATION  :
          AB 1680 (Wieckowski) (Chapter 473, Statutes of 2012) Dissenting  
          Shareholders' Rights-Provides that the fair market value of  
          dissenting shares shall be determined as of the day of, and  
          immediately prior to, the first announcement of the terms of the  
          proposed transaction, subject to adjustment.  

           REGISTERED SUPPORT / OPPOSITION  :   

           Support 
           
          State Bar of California, Business Law Section, Corporations  
          Committee.                                        

           Opposition 
           
          None on file.
           
          Analysis Prepared by  :    Kathleen O'Malley / B. & F. / (916)  
          319-3081