BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                            



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                                    THIRD READING


          Bill No:  AB 457
          Author:   Torres (D)
          Amended:  As introduced
          Vote:     21

           
          SENATE BANKING & FINANCIAL INSTITUTIONS COMM.  :  8-0, 6/5/13
          AYES:  Correa, Berryhill, Beall, Hill, Hueso, Lara, Roth,  
            Walters
          NO VOTE RECORDED:  Calderon

           ASSEMBLY FLOOR  :  75-0, 4/11/13 - See last page for vote


           SUBJECT  :    Shareholders

            SOURCE :     Corporations Committee of the Business Law Section  
                      of the  
                         California State Bar  


           DIGEST :    This bill eliminates the 10-day waiting period that  
          currently applies for corporate reorganizations in which  
          shareholders have the right under dissenters rights to demand  
          payment of cash for their shares.

           ANALYSIS  :    

          Existing law:

          1. States that, unless otherwise provided, any action that may  
             be taken by a corporation at any annual or special meeting of  
             shareholders may be taken without a meeting and without prior  
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             notice, if a consent in writing, setting forth the action, is  
             provided by holders of outstanding shares equal to or greater  
             than the minimum number of votes that would have been  
             necessary to authorize or take that action at a meeting.   
             (The actions include corporate reorganizations, conversions  
             of corporations into domestic other business entities,  
             shareholder distributions upon dissolution, indemnification  
             of directors and officers, and agreements between directors  
             and corporations).  

          2. Requires corporations to solicit the consent of all  
             shareholders or subject certain proposed corporate actions to  
             a 10-day waiting period.  

          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.  

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

           Background
           
          The ability of California corporations to obtain shareholder  
          consent for certain actions outside of shareholder meetings has  
          been recognized in state law since 1977.  Under existing law, a  
          corporation may solicit shareholder consent for an action  
          outside of an annual or special shareholder meeting, and may act  
          based on consent received for that action, as long as consent,  
          in writing, setting forth the proposed action, is received from  
          a percentage of shareholders that is at least as large as the  
          percentage of shareholders that have been required to authorize  
          or take that action, if it had been voted on at a shareholder  
          meeting.  

          State law does not require a corporation that seeks shareholder  
          approval for actions outside of a shareholder meeting to solicit  
          the approval of all of its shareholders for those actions; as  
          long as the corporation receives enough votes in support of its  
          proposed actions, it can choose to solicit a subset of its  
          shareholders for the necessary approval.  When fewer than all  
          shareholders are solicited for approval of an action, state law  

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          requires that a corporation notify those shareholders whose  
          written consent was not received for that action about the  
          action that was approved.  State law also requires a 10-day  
          waiting period between the required notice and the ability of a  
          corporation to consummate approved actions in certain cases.   
          These special cases, where actions require a 10-day waiting  
          period, include corporate reorganizations, conversions of  
          corporations into domestic other business entities, shareholder  
          distributions upon dissolution, indemnification of directors and  
          officers, and agreements between directors and corporations.   
          This bill removes the 10-day waiting period for corporate  
          reorganizations with respect to which shareholders are entitled  
          to demand cash for their shares pursuant to California's  
          dissenters' rights statute.  

          Dissenters' rights laws acknowledge the possibility that some  
          shareholders who hold shares in a company that is merging with  
          or becoming acquired by another company may wish to divest  
          themselves of their shares, and be compensated for those shares  
          at their fair market value.  In California, shareholders of both  
          publicly-traded and privately-held corporations are entitled to  
          demand cash for their shares pursuant to California's  
          dissenters' rights statute.  This bill only impacts  
          privately-held corporations.  

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  No   Local:  
           No

           SUPPORT  :   (Verified  6/6/13)

          Corporations Committee of the Business Law Section of the  
          California State
              Bar (source)


           ARGUMENTS IN SUPPORT  :    The bill's sponsor, the Corporations  
          Committee of the Business Law Section of the California State  
          Bar, observes that this bill does nothing to alter the time  
          periods built into California's dissenters' right statute.  Even  
          if this bill is enacted, California corporations whose  
          shareholders have approved reorganizations subject to  
          dissenters' rights will still be required to notify their  
          shareholders of the approval, provide them with copies of the  
          dissenters' rights statutes, inform them of the procedure that  

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          must be followed by a shareholder wishing to exercise his/her  
          dissenters' rights, and state the price that the corporation  
          deems to be the fair market value of the shares.  Dissenting  
          shareholders will continue to have 30 days in which to demand an  
          independent appraisal of their company shares, and will continue  
          to have six months in which to commence an appraisal action in  
          Superior Court.

          The sponsor also observes that this bill does not propose to  
          alter the fiduciary duty owed by a board of directors to all  
          shareholders, and by majority shareholders to minority  
          shareholders.  These fiduciary duties provide direct recourse  
          for aggrieved shareholders who disagree with an action that was  
          approved via consent from a subset of shareholders.  A minority  
          shareholder whose written consent was not solicited will retain  
          the ability to sue members of the board of majority shareholders  
          for cash damages.

          Finally, the sponsor observes that nothing prevents a  
          shareholder or a group or shareholders from requiring, as a  
          condition of their investment in a corporation, that the  
          corporation and other shareholders contractually agree to obtain  
          the approval of the shareholder or group of shareholders prior  
          to specified corporate actions, including reorganizations with  
          dissenters' rights.


           ASSEMBLY FLOOR  :  75-0, 4/11/13
          AYES:  Achadjian, Alejo, Allen, Ammiano, Atkins, Bigelow, Bloom,  
            Blumenfield, Bocanegra, Bonilla, Bonta, Bradford, Brown,  
            Buchanan, Ian Calderon, Campos, Chau, Chávez, Chesbro, Conway,  
            Cooley, Dahle, Daly, Dickinson, Eggman, Fong, Fox, Frazier,  
            Beth Gaines, Garcia, Gatto, Gomez, Gordon, Gorell, Gray,  
            Grove, Hagman, Hall, Roger Hernández, Holden, Jones,  
            Jones-Sawyer, Levine, Linder, Logue, Maienschein, Mansoor,  
            Medina, Melendez, Mitchell, Morrell, Mullin, Muratsuchi,  
            Nazarian, Nestande, Olsen, Pan, Perea, V. Manuel Pérez, Quirk,  
            Quirk-Silva, Rendon, Salas, Skinner, Stone, Ting, Torres,  
            Wagner, Waldron, Weber, Wieckowski, Wilk, Williams, Yamada,  
            John A. Pérez
          NO VOTE RECORDED:  Donnelly, Harkey, Lowenthal, Patterson,  
            Vacancy



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          MW:d  6/6/13   Senate Floor Analyses 

                           SUPPORT/OPPOSITION:  SEE ABOVE

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