Legislature(1999 - 2000)
03/02/2000 01:40 PM Senate L&C
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 279-REDEMPTION OF CORPORATE SHARES
CHAIRMAN MACKIE announced SB 279 to be up for consideration.
MR. DAVID GREY, Aide to Senate Labor and Commerce, said SB 279 is
an act related to redemption of shares of certain Alaskan
corporations. It allows the redemption of preferred stock at the
discretion of the stock holder. By providing this option, Alaska
corporations are given an alternative method to raise funds and
Alaskan investors are given an expanded investment opportunity.
As the Alaskan Corporate Code stands now, redemption of preferred
shares is only at the option of the issuer. The right to have
stock redeemed under specific conditions can be an important aspect
for a stock sale or transaction. This share redemption right gives
the shareholder an avenue to get the holder's cash back under terms
negotiated with the issuing corporation.
Under this bill, preferred stock share redemption must also comply
with other restrictive provisions of the Corporate Code. For
example, a redemption is prohibited if the amount of the
corporation's retained earnings immediately before the proposed
distribution does not equal or exceed the amount of the proposed
distribution. "You've got to have enough money to pay everybody
off."
The Alaska Corporate Code is modeled in large part after the
California Corporation Code. This body of law has since been
amended and expanded to allow for this kind of stock redemption.
A number of other states have also allowed the issuance of
preferred stocks similar to what is being proposed by this bill.
MR. TERRY ELDER, Director, Division of Banking, Securities, and
Corporations testified that a number of other states already allow
this option to corporations. It wouldn't have any fiscal impact on
his department in terms of filing requirements. They agree that
there are other sections of the Corporation Code that provide
adequate security for shareholders so that they wouldn't be
financially harmed by redemptions. Consequently, it just becomes
a public policy issue for the legislature to decide.
CHAIRMAN MACKIE asked what other states do.
MR. ELDER answered that California, in particular, which our Code
was based on, and a number of other states have already amended
their acts to allow for this option.
CHAIRMAN MACKIE asked if he saw any public policy reasons or
downside why they should continue to deny that option.
MR. ELDER said he didn't.
Number 411
SENATOR LEMAN asked if he would recommend to the Governor that he
sign this.
MR. ELDER responded that he was not taking a position on the bill,
but, if the bill passes the legislature, and the Governor asks the
Commissioner, and the Commissioner asks him, he couldn't see any
reason why he wouldn't recommend it.
SENATOR KELLY asked who requested it.
CHAIRMAN MACKIE answered that the Labor and Commerce Committee
introduced it at the request of some companies. He thought GCI was
one.
Number 477
MR. JULIUS BRECHT, Attorney and Managing Shareholder of the Law
firm Wolforth, Bachelor, Johnson, and Brecht, said he was a past
Director of the Alaska Division of Banking, Securities, and
Corporations. He said he had submitted a written statement in
support of this bill which they should already have. He summarized
his statement saying that he participated in the development and
review of proposals for a new Alaska Corporate Code. As
comprehensive as that effort was, time marches on and corporate law
needs change. Redemption of shares is an example. The proposed
changes to section .325 do not lessen the provisions in the Code
for protection of shareholders of a corporation. They will allow
greater flexibility to a corporation's board of directors in
addressing capital needs in the present day financial markets.
MR. JIMMY JACKSON, GCI, said their chief financial officer, John
Lowe, has submitted testimony in support of SB 279. Since he is
traveling today, Mr. Jackson said he was here to reiterate his
testimony and answer questions. Several other states, including
those who are leaders in corporate law like Delaware, already allow
preferred stock which is redeemable in this way at the option of
the shareholder.
GCI is an Alaskan corporation, founded by Alaskans, and is one of
the few publicly traded corporations. Unfortunately, they are at
a disadvantage because they cannot issue preferred stock which is
redeemable at the option of the shareholder. This is a
disadvantage to them in trying to raise capital to conduct their
business. Without this law, businesses will be less inclined to
incorporate in Alaska and more inclined to incorporate in another
state.
MR. DAVID TAYLOR, Chief Financial Officer, Grady and Company, a
privately held insurance brokerage, supported SB 279 for many of
the same reasons that have already been stated. By enabling
Alaskan corporations to remain competitive with other states in the
raising of capital, this is a revenue positive bill for the State
and will result in additional taxable income.
CHAIRMAN MACKIE asked if there was anyone else to testify and
getting no response he closed the pubic testimony.
SENATOR LEMAN thanked him for introducing this legislation. It was
good and timely.
SENATOR KELLY commented that he wasn't sure of that since they had
the bill only ten days and had heard from only one corporation. He
would like to believe that. He wanted to hear if there is another
side of the story. He wanted to hear that, too.
CHAIRMAN MACKIE responded that the bill was scheduled twice and the
same people had testified. He asked Mr. Grey if there was any
opposition to the bill. He indicated there was none. He asked
Senator Kelly if he wanted to hold the bill and he indicated no.
SENATOR KELLY said this appears to be a major change in the
Corporate Code and he's not sure if the corporate world is aware of
that, yet.
SENATOR LEMAN moved to pass SB 279 from committee. There were no
objections and it was so ordered.
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