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.