Legislature(1999 - 2000)
03/06/2000 02:30 PM House JUD
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 357 - REDEMPTION OF CORPORATE SHARES CHAIRMAN KOTT announced that the first order of business would be HOUSE BILL NO. 357, "An Act relating to the redemption of shares of certain Alaska corporations." Number 0135 SHAN HAN, Staff to Representative Lisa Murkowski, Alaska State Legislature, testified on behalf of the sponsor. He explained that HB 357 allows Alaskan corporations to issue preferred shares that are redeemable at the discretion of the shareholder. Basically, this provides Alaskan corporations with another method of raising funds. Number 0215 TERRY ELDER, Director, Division of Banking, Securities & Corporations, Department of Community & Economic Development (DCED), pointed out that the division has submitted a zero fiscal note. The bill would have no impact on the filing requirements of corporations. He views HB 357 as a policy question with regard to whether one would want to remove the current restriction from the issuance of shares that are redeemable at the option of the shareholder versus the option of the corporation. He noted that the division has reviewed HB 357 and aspects of Title 10, which provides other shareholder protection against redemptions that would cause a company to have a financial problem. The division believes that there is ample security for shareholders in other sections of Title 10. Therefore, there is no objection to this. MR. ELDER acknowledged that other states, such as California, have moved in this direction. It has been mentioned that Alaska's statute is based on California's statute, which has changed, and thus HB 357 would adopt the change that California has. With regard to corporations, this would be allowed rather than required; corporations would only use this option if the corporation saw it as in their best interest in negotiating with purchasers of these securities. Typically, there would be trade-offs between the price obtained for the security versus various options such as redemption options. Mr. Elder said that the division cannot think of any particular public policy reason to prevent this option from being available to corporations. Number 0381 REPRESENTATIVE GREEN requested clarification. MR. ELDER said this [HB 357] would essentially allow the corporation to redeem the shares and thus the corporation would buy them back. In this case, it [the buy-back] would be at the option - with the various terms already negotiated - of the holder. REPRESENTATIVE GREEN inquired as to whether it would be at the issued value or some floated value. MR. ELDER answered that it would be at whatever schedule the issuer determines at the time of issuance. Currently, this is true for convertible securities and other securities that have sinking funds, for example. These are preset prices that ordinarily have no relation to current market values. In response to a question by Representative Green, he clarified that one would not necessarily get it back at the value for which it was purchased; that would be dependent upon the schedule. Number 0542 JULIUS BRECHT, Attorney and Managing Shareholder, Wohlforth, Vassar, Johnson & Brecht, testified via teleconference. He informed the committee that he is a past director of the Alaska Division of Banking, Securities and Corporations, having served from 1976 to 1980. Since that time he has been in private practice in Anchorage. He noted that his law practice is in the area of business law, with a focus on securities and corporate and finance law. Mr. Brecht also noted that the committee should have a copy of his written testimony, which he would paraphrase. MR. BRECHT informed the committee that he had participated in the development and review of proposals for a new Alaska corporate code from the late-1970s to the 1980s. That ten-year effort had resulted in a bill enacted by the legislature that became the Alaska Corporations Code, effective July 1, 1989. He noted that this was a comprehensive effort but said the needs of corporate law do change with time, as exemplified in HB 357. Mr. Brecht echoed Mr. Elder's earlier comments that the Alaska Corporations Code provision dealing with the redemption of shares, AS 10.06.325, is based on a similar provision of the California Corporation Code of the time. Since that time, however, the California law has changed, and thus HB 357 is before the committee to accomplish a similar change under the Alaska Corporations Code. MR. BRECHT told members that in his view, the proposed changes to [AS 10.06.]325 do not lessen the provisions of the code protecting shareholders of the corporation; however, they allow greater flexibility to a corporation's board of directors in addressing capital needs in present-day financial markets. He concluded that the Alaska Corporations Code is in need of amendment to recognize the needs of modern corporations, while retaining shareholder protection already adopted in other commercial states. Specifically, the amendment is needed to incorporate changes to code provisions of California on which [AS 10.06.]325 is based. Number 0756 JOHN LOWBER, Chief Financial Officer, General Communication Incorporated (GCI), testified via teleconference from Anchorage. He informed the committee that he had been serving in that capacity for nearly 15 years. He pointed out that GCI is headquartered and incorporated in Alaska, and its subsidiaries are incorporated in Alaska. Therefore, his interest in HB 357 is to ensure that GCI does not suffer any competitive disadvantages when compared to other peers. Currently, the inability of the holder of preferred stock to ask for redemption results in the company having to compensate for that inability in another manner, which indirectly increases [the company's] cost of capital. This would not be the case if GCI were incorporated in some other state, including California. MR. LOWBER told members he is interested in HB 357 so that the Alaska law stays current and does not discourage companies from incorporating in other states. Therefore, it is important for the legislature to adopt a law so that "we" are not disadvantaged in raising capital. Furthermore, Mr. Lowber believes that passage of HB 357 would encourage business to continue to incorporate in Alaska. Number 0880 DAVID TAYLOR, Chief Financial Officer, Brady & Company, Inc., testified via teleconference from Anchorage. He informed the committee that he has worked in this capacity for the past 17 years. Brady & Company is a private-account Alaska corporation and an Alaskan (indisc.) insurance brokerage. Mr. Taylor said he supports HB 357 for the same reasons provided by the prior witnesses. An Alaskan corporation should not have a competitive disadvantage in attracting investment capital. This bill helps to strengthen Alaska's economy by promoting investment in Alaskan corporations, which would result in additional growth and profitability of those corporations, and which would, in turn, result in more tax revenue to the state treasury. CHAIRMAN KOTT asked if anyone else wished to testify, then closed public testimony. REPRESENTATIVE ROKEBERG pointed out that HB 357 had received a thorough hearing in the House Labor & Commerce Committee. He believes it is essential that Alaska updates its corporate code. Number 0966 REPRESENTATIVE ROKEBERG made a motion to move HB 357 out of committee with individual recommendations and the accompanying zero fiscal note. There being no objection, HB 357 was moved from the House Judiciary Standing Committee.
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