BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 457
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          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             |
          |     |                          |
           -------------------------------- 
           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  








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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 


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