BILL ANALYSIS �
AB 457
Page 1
ASSEMBLY THIRD READING
AB 457 (Torres)
As Introduced February 19, 2013
Majority vote
BANKING & FINANCE 12-0
--------------------------------
|Ayes:|Dickinson, Morrell, |
| |Achadjian, Blumenfield, |
| |Bonta, Chau, Gatto, |
| |Harkey, Linder, Perea, |
| |Torres, Weber |
| | |
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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. This bill
eliminates the 10-day waiting period which would only apply to
AB 457
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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 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.
Based on the assumption that meetings give rise to robust debate
while written consents do not, some practitioners believe that
the 10-day waiting period in existing law was included to
provide a window for the debate among shareholders that would
otherwise occur at a meeting. In addition, some practitioners
believe that the 10-day waiting period was included to afford
shareholders an opportunity to "take whatever action they deem
appropriate to protect their interests." (Harold Marsh, Jr.,
Marsh's California Corporation Law, Section 12.06 (2011))
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 continue to be subject to a 10-day period in which
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to notify shareholders of the approval and provide them with
copies of the dissenters' rights statute, 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 and Nevada (which are both known
for being corporation-friendly) do not impose a 10-day waiting
period on any corporate action that is approved by written
consent of shareholders.
Analysis Prepared by : Kathleen O'Malley / B. & F. / (916)
319-3081
FN: 0000108