MINUTES OF THE
ASSEMBLY SUBCOMMITTEE ON JUDICIARY
Sixty-seventh Session
May 3, 1993
The Assembly Subcommittee on Judiciary was called to order by Subcommittee Chairman Scott Scherer at 9:30 a.m., on Monday, May 3, 1993, in Room 332 of the Legislative Building, Carson City, Nevada. Exhibit A is the Meeting Agenda. Exhibit B is the Attendance Roster.
SUBCOMMITTEE MEMBERS PRESENT:
Mr. Scott Scherer, Subcommittee Chairman
Mr. James A. Gibbons
Mr. John B. Regan
Mr. Michael Schneider
OTHERS PRESENT:
Mr. John Fowler, Vargas & Bartlett
Mr. Kirk S. Schumacher, Woodburn & Wedge
Ms. Cindy Woodgate, Secretary of State's Office
Mr. Lewis Laughlin, Laughlin & Associates
Mr. Steven Stucker, Laughlin & Associates
Mr. Edward Durand, Private Citizen
Mr. Bob Price, Assemblyman, District 17
ASSEMBLY BILL 387 - Makes various changes concerning corporations and similar entities.
Opening the hearing on AB 387, Subcommittee Chairman Scherer called on Mr. Fowler and Mr. Schumacher to speak on the business combination section. Responding to Mr. Scherer's question, Cindy Woodgate, representing the Secretary of State's Office, said they had no different position from that of Mr. Fowler regarding this section.
Mr. Scherer pointed out there were a number of exhibits submitted which were to be made a part of the record:
1. A letter from Laughlin Associates and attached documents (Exhibit C);
2. A letter from John Fowler from the law firm of Vargas & Bartlett and attachments (Exhibit D);
3. A letter from Mark Goldstein from the firm of Lionel Sawyer & Collins (Exhibit E);
4. Written testimony from Kirk S. Schumacher (Exhibit F); and
5. A letter from Luke Perry (Exhibit G).
Coming forward,
Mr. Fowler: "The business combination statutes as proposed would be a change from the 1991 legislation. While there is no change proposed to the statute, the board of directors consider constituency other than shelters making corporate decisions; thus would allow the board of directors to take a long- range view toward the corporations, its future prospects, and interests of employees and the people who live in the communities where the corporations may have plants or operations remain intact. However, another part of the policy: The 1991 legislature would indeed be changed by these changes to the business combination statutes. I think the committee is faced with a choice of changing the business combinations statutes so the shareholders will be totally in control and less able to vote any way they wish, regardless whether or not they may be stampeded into doing so in an economic fashion by potential hostile takeover or whether they wish the board of directors to have much control over the ability of a potential takeover artist or someone seeking control of the company to defend and stop the process. Frankly in the process negotiating with the potential takeover artist or person seeking to control the corporation negotiate with that person, perhaps either get a better price or fend off the takeover altogether. Business combination statute is designed to have a real deterrent effect. It's designed to compel as it exists today, compel the person seeking control of the corporation to come to the board and get the board's blessing; otherwise he's frozen for five years. Everyone agrees the five years should be changed to three years even if nothing else in the statute is changed. But nonetheless, he's frozen for a considerable period of time.
"In the 1980's this had the effect of preventing a takeover altogether because you couldn't keep financing available for three years or five years either. That was where the corporation really had this guy because someone like T. Boon Pickens wasn't going to be able to wait the five years before they could make a substantial move and that is what the bill was basically designed for in 1991. The philosophy of the changes in 387 of course is considerable change."
Mr. Scherer: "Were talking about Sections 42 through 45?"
Mr. Fowler: "Yes, I believe that's correct."
Mr. Scherer: "In the letter that you submitted to us you had proposed some changes, Mr. Fowler, had you not to those sections."
Mr. Fowler: "That is correct. The changes I proposed, the first set of changes, I think everyone more or less agrees with, changing the stop period from five years to three years. You will read testimony this morning, not written testmony offered by Mr. Schumaker, which they have done a survey of all the business combinations statutes, and I don't want to quote him and get the real figure wrong; but I believe of the 31 bills, business combination statutes, 12 for three years and 17 for five yars, so it's pretty evenly split. Three years does the job so I think everyone agrees five years may be a little bit long.
"The second change proposed would clarify the statutes. When the LCB, first of all, as proposed in 1991, our statute was based on Indiana's. Indiana's had one big huge central statute which the Legislative Counsel Bureau here decided they would carve to pieces which frankly makes it more understandable in some respects, but in doing so they made the statute unclear. The first part of the big, long Indiana statute is now 78.438 and contains the lockout period, the first lockout period for five years or if amended, three years. Seventy eight point four three nine in the following statutes are supposed to deal with the post lockout, compelling the takeover artist even after the post lockout to offer the other stockholders his best price, the highest price he paid for the stock in the company, if he is going to buy their stock and take it over. The meaning kind of got lost in the shuffle and those of us who understood where it came from can kind of piece that together; but it sure would be nice to clarify for everybody else, that is why I propose the changes in the letter. Mr. Schumaker has a little bit different wording which looks fine to me, you could take either one on that subject.
"Finally, I offered as sort of an intermediate medium position between that taken by the committee and that taken by Mr. Schumaker which would allow a complete board opt out. This would allow the board of directors at anytime to opt out of the business combination statute for the preparation. This would also accomplish the following: it would allow the takeover artist to perhaps gain control of the board, change the board, or coerce the board in various economic ways and would allow the board to then drop the business combination statute. The way the statute is now, the board does not have that freedom and the takeover artist knows it. It would simply be useless for him to try one or another kind of economic strategies or economic coercion especially if the corporation is in trouble, it would be a waste of time to do that now cause the board can opt out whereas he certainly could try that if he were to give the board an opt out."
Mr. Scherer: "Theoretically it would still be possible for a shareholder to acquire sufficient stock to change the board of directors, or at least make some changes and thereby gain approval of the proposed transaction by the board. Even if you can't get the board to opt out of the provisions, he would still have to then go to the shareholders and get other approvals in accordance with the business combination act in order to finally consumate that transaction."
Mr. Fowler: "Right. I believe the existing statute permits a shareholder opt out; but its only effective 18 months after the adoption. So, it puts an additional delay and frankly for a takeover artist, the classic T. Boon Pickens kind of takeover artist, even 18 months is too long to wait. He cannot hold his financing in place together that long.
Mr. Fowler: "We're concerned as a committee. We do not want to see this bill get to hung up on this particular matter. There are other matters in the bill which we consider extremely important. One of them is in the non-profit area, which I think you are very familar with, I think everybody supports this; and the Secretary of State, of course, has some very important matters."
Mr. Scherer: "Are there any questions for Mr. Fowler before we hear from Mr. Schumacher?"
"My name is Kirk Schumacher from the law firm of Woodbury & Wedge. I am here representing Pacific Telesis Group National Medicial Enterprises and Sierra Pacific Resources. They have taken a deep interest in the actions of the committee on the business combinations acts."
"I don't dispute in what Mr. Fowler said. It's just the effect of some things he said that I dispute. First, John indicated the business combination act stopped takeovers altogether. Basically, we have not had a really active takeover market because financing has become extremely more difficult. When funds become more available, we can probably expect more hostile takeovers of corporations to occur. The reason why it doesn't stop takeovers altogether is because the business combination act funnels those decisions to the board of directors. The board still has a duty to, within the confines of the business judgement rule, to act reasonably with respect to whether or not they should approve. This particular acquires acquisitions stock in the corporation. There is a determination to be made by the board of directors as to where they should permit this hostile acquisition. Now, in making a determination, and as expressed in the 1991 changes, they can consider other constituencies such as employees, customers, suppliers, creditors, the community in general; but it is within the power of the board of directors to approve a lesser than full control of the corporation or a complete takeover of the corporation by this hostile acquisition.
"The second thing John indicated was on the opt out provisions. The proposal he made in his letter radically changes the balance between the corporation interest and the hostile takeover person. It basically permits the person engaging in a hostile takeover to gain control or influence of the board of directors, and then have the board of directors opt out of the statute and simply proceed with the transaction he proposes. The statute may include the sale of divisions, or the sale of properties, actions which would dramatically affect other constituencies who might be interested in the hostile takeover person's actions. A more limited board opt out could conceivably be crafted; however, I would note that of the 31 jurisdictions that have adopted this act, there is only one that requires the board of directors to opt in this matter as stated in my written testimony. There are only two that have any director opt out provisions, the remaining 28 do not permit the board of directors to opt out of the business combination act. The reason is the board of directors already has the power to opt out of the act with regards to any particular acquisition. The second reason is to avoid the problems inherent in trying to craft a solution which would not in the end run by the person engaged in the acquisition. One, which I use as an example of this, has a provision which permits the board of directors to opt out, but the opt out vote is required by 85 percent of the directors then in office and is not effective for 18 months. As far as I know this doesn't apply to the interested stock- holders. The board of directors is very limited in its ability to opt in general. If the board of directors determines it is in the best interest of the corporation to seek a change in the control of the corporation, then it could very simply provide that the act doesn't apply, or they could announce they would waive the provisions of the act as to any hostile acquisition. At that point it wouldn't be hostile, they could simply waive the provisions of the act. I think this is a very important difference.
"The only other opt out which John mentioned is the shareholder opt out. In the shareholder opt out there is one additional step which is basically going to be required, the preparation of proxy statements which will go to those shareholders to enable them to make an intelligent decision as to whether the corporation should, in fact, opt out of the business combination act. The effect would basically explain to the shareholders everything of material in their consideration whether to opt out of the act entirely or to make contact by the corporation with persons who might engage in an acquisition of that corporation. Secondly, even if the shareholder does opt out it is limited by the following: It doesn't apply until 18 months after the adoption of the amendment, and it doesn't apply to an interested shareholder who is interested at the time of adoption. This prevents an end run around in the end of provisions to the business combination act, which basically say come to the board first.
"We agree with balancing the interest of the corporation and the stockholders economic interest and other interests. The five to three years should be adopted by the legislature. It would reflect a rational decision by the legislature if carefully considers those competing interests, and determines that a five year plan may be excessive and a three year plan would be sufficient to meet the purposes of the act. We also confur with Mr. Fowler regarding the codification that leads to the ambiguity in the current business combination act. We very strongly resist any attempt to have a director opt- out provision. We believe that such a provision would have to be one, carefully crafted; second, quite unusual from the business combination acts that have been adopted; and third, would represent a policy shift from what was decided two years ago in 1991."
Mr. Scherer: "Any questions for Mr. Schumacher? Thank you gentleman. Ms. Woodgate. Did you have any remarks you wanted to make on the bill in general?"
Ms. Woodgate: "No."
Mr. Scherer: "No's an acceptable answer."
"For the record, I'm Cindy Woodgate, Deputy Secretary for Corporations. As far as the bill in general, we don't want to lose it. I have some comments on testimony taken last time dealing with resident agents which I'm sure your going to be getting into."
Mr. Scherer: "Why don't you go ahead and tell us what you've got."
Ms. Woodgate: "I did some research. I placed a couple of calls and found out there is no other state that requires the registration of resident agents anywhere or a yearly fee of any sort. Also, we have approximately, in our database, 25,000 individuals or companies that are acting as resident agents for corporations in the state of Nevada. Our biggest one has 17,988. They are an agent for our smallest one who is one person; but as we said in our last testimony, we will work with you in whatever you decide needs to be done. Any questions?"
Mr. Gibbons: "Do you have an estimate of what would be the overall financial or fiscal impact on the Secretary of States Office if you were to get into regulating these? What would be the cost? What would you require?"
Ms. Woodgate: "I don't have any figures in front of me; but it would require not only a fiscal impact, but it would change the entire scope of our office from administerial to regulatory. We would probably have to have twice as many staff, probably another deputy AG. This is coming off the top of my head. Thinking of what we've got currently, I think it would have an awfully large fiscal impact."
Mr. Gibbons: "If we were to amend AB 387 with some sort of regulatory provision that would cause a serious derailment of the bill, it would then have to go before both finance committees in order to receive passage and approval. Thank you."
Mr. Scherer: "Any other questions, for Ms. Woodgate? Who else in the audience would like to testify? Mr. Laughlin, why don't you come up."
Mr. Laughlin: "I have some materials I would like to pass out to you. It's my understanding during the last testimony heard on this bill in front of the subcommittee, there were some disparaging remarks made about Laughlin Associates and our business."
Mr. Laughlin then made a long dissertation about the remarks Mr. Durand had made.
Mr. Scherer: "Mr. Laughlin I think we get the idea."
Mr. Laughlin: "Okay, then I will go ahead and move on, sir, to the other issues.
"Let me address the proposition of regulating the resident industry as a whole. First of all, its important to understand that a resident agent takes no part in the management of the company. A resident agent is simply an agent for service of process required by law in a state where a company is incorporated, or in a state where a company is doing business. In Nevada, a resident agent has certain requirements. Those requirements are: to keep certified articles on file, keep certified by-laws on file, and to keep a stock ledger or duplicate stock ledger or statement setting forth the custodian and address of the custodian of the stock ledger. If a resident agent fails to perform those duties under the law he is already subject to penalities of $25.00 per day for everyday that he refuses to comply with the law. Further more, he is subject to civil penalties from the client who could sue the resident agent for failure to perform his duties. I would grant, it is possible for an agent of a corporation to also become the officer and director of a corporation. Such is not the case with our company nor is it the case with most of the companies providing resident agent services.
In a case where a resident agent is also an officer or director of the company, the officer or director would become responsible under law for the acts of the company if there were improprieties or illegal acts committed.
From reading the press recently, I understand Mr. Perry has complained on several occasions to the Secretary of State about the problems he's had. My curiosity is aroused as to why the Securities Division of the Secretary of States office has not investigated this matter, or has not taken some sort of enforcement action. There are plenty of laws on the books against fraud; misrepresentation; obtaining money under false pretenses; and if your going to sell a security in the State of Nevada, the security is supposed to be registered if it is not it is a crime. Our problem in this area lies with; law, the enforcement of the law, or possibly with not seeking the proper remedies. Possibly, the proper forum for this is to be discussed and for action to be taken in a court of law where the aggrieved parties can submit proof; and the aggrieved parties can prove the problems have occurred; and can prove that someone is guilty of wrong doing. Once they have proven this, then let the proper remedy kick in and if they have committed some crime which there are plenty of laws on the books to define they should be prosecuted.
Our company and companies like ours do nothing more than serve as an agent for service of process or sell corporations. If we were to ask each and every merchant of a product or a service to vouch for the credibility of each and everyone of their customers then we are eliminating free enterprise. I do not think thats the intent of AB 387 or of the subcommittee.
The only purpose that regulating the resident agent industry could possibly serve is to limit the number of people who serve as resident agents. I know there are exemptions being discussed for attorneys, accountants and CPAs. Why are we to thedomainonly open to those professions. Were a private enterprise. We are not a law or legal firm and yet we contribute more corportions each year to the state of Nevada than any other company.
I thank you all for your time and consideration and any questions that you might have I would be happy to answer."
Mr. Scherer: "Any questions for Mr. Laughlin?" "Mr. Stucker did you have a statement?"
I'm Steven Stucker, general counsel for Laughlin Associates Incorporated. I've been in that capacity for approximately 18 months. It is my opinion this information which is disseminated and taught by Laughlin Associates is not in anyway fraudulent; but rather, it teaches lawful legitimate asset protection techniques, and methods which are practiced and espoused by many of those accounting and legal professionals in numerous jurisdictions, not just in Nevada but in numerous states nationwide. There are those who exclusively practice in these areas of asset protection.
Mr. Scherer: "Let me start by saying one thing in response to Mr. Laughlin's statement. There have been some discussions about the possibility of having a regulatory scheme, a basic regulatory scheme for resident agents. There have been discussions about exempting certain individuals including attorneys and CPAs although you seem to distinguish between accountants and CPAs. I was talking about only exempting CPAs not accountants. The purpose of those kind of exemptions is the fact that those people are already regulated, if they engage in some misconduct there is already a state sponsored board which has the ability to revoke their license to practice their profession.
I'd like to ask Mr. Stucker since you're the attorney for Laughlin Associates, have you taken a look at all of the securities laws or any other laws regarding fraud and is it your understanding the allegations made by Mr. Perry, for example, would already be covered by current Nevada laws regarding fraud assuming them all to be true?"
Mr. Stucker: "Yes. I examined the securities laws; and it appears to me there is a possible regulatory aspect, particularly where the value of the notes is tied to the price of the minerals, an underlying determinative of value. I think that aspect necessitates some investigation of all the details of the transaction. It seems it is a grounds that certainly deserves investigation by the securties division."
Mr. Scherer: "Let me ask one last question? If a resident agent were knowingly involved in a fraudulent scheme, is it your feeling they would be covered to the same extent by our existing fraud statutes?"
Mr. Stucker: "Yes. I think a resident agent is probably no different than anybody else affilated with the actors in a particular event. If they are associated with a corporation or independents, it does not matter, persons who are in fact collaberating with someone in a fraudulent scheme, obtaining money under false pretenses, would be covered under the statutes on misappropriation of funds. They wouldn't exclude someone from being covered because the person happens to be the resident agent. The resident agent has a very limited scope of his responsibilities for a corporation and I don't think the fact that the person is a resident agent ties him in any particular way to the corporation. If the resident agent doesn't forward any service of process to the corporation, the corporation could get defaulted on any type of suit. There could be rather substantial liabilities to the corporation resulting from that failure."
Mr. Scherer: "Any questions Mr. Stucker, Mr. Laughlin, Mr. Regan?"
Mr. Regan: "Mr. Stucker, you mentioned these notes were signed and the payments were relative to the price of a commodity in gold?"
Mr. Stucker: "That's my understanding. As I say I'm not privy to all the details; but from what I have gleened from a couple of sources its my understanding."
Mr. Regan: "I have read the correspondence. From a philosophical argument, where is that any different than a banker charging you the same rate of interest as prime?"
Mr. Stucker: "I don't know that it is."
Mr. Regan: "Gold goes up and down, cotton, whatever the commodity might be, whether it be gold or not. I think if you went in today to negotiate a large note it would be relative to the price of prime, would it not?"
Mr. Stucker: "Oh it certainly would, yes."
Mr. Regan: "What's the difference between a fictitious number of prime rates set or the price of gold?"
Mr. Stucker: "I don't know that there philosophically is or should be any difference, except in a statute regarding securities. One of the things specified is when notes have their values fixed relative to certain minerals, then they then become securities."
Mr. Regan: "You mean the mineral itself becomes a security?"
Mr. Stucker: "No. The documents relating to, or whose value is determined by the mineral."
Mr. Regan: "I see. Thank you."
Mr. Scherer: "Any other questions?"
Mr. Laughlin: "Your point about the exceptions and the talk of regulations of resident agents is well taken. What I was simply trying to point out is the scope of the resident agents or of the merchants involvement. I don't think there has been any substantive evidence presented to anyone that a resident agent or an incorporating company was involved with any type of fraud or scheme or anything like that, other than to simply sell a product to someone. So, my point was an attorney or a CPA could just as easily fall into that as anyone else; not that they would knowingly conspire to do so, nor would we, as we would like to stay in business another twenty years."
Mr. Scherer: "I understand, I'm not trying, Mr. Laughlin, to judge the truth or accuracy of any of the allegations that have been made surrounding in and around this bill. We're not a court of law; and I think that's the appropriate place for specific allegations in specific cases. What we are attempting to do is deside whether those allegations create a situation where we should, as a policy matter, adopt some kind of protections for the public, in case those kind of things do occur, or in case the allegations are true.
Mr. Scherer: "Anyone else wishing to testify? Mr. Durand." Let me say before you begin Mr. Durand, as I just said, I don't view us as a court of law. I don't want to try the allegations you have. We did hear them the last time when we gave Mr. Laughlin time to respond today to those allegations; but I really don't want to get into a lot of finger pointing. I think you were in the audience when I tried to cut him off and direct him to dealing with the bill itself. I would like to direct you to deal with the bill itself or with the concept of regulating resident agents."
Mr. Durand: "Mr. Chairman, members, I am Edward Durand. As I said in my last correspondence, it was not my intent to adjudigate the differences between Mr. Laughlin and I. I intend to deal with the function of a resident agent as it relates to activities beyond process of service."
Mr. Durand made a dissertation about actions taken by Laughlin Associates.
Mr. Scherer: "Mr. Durand, this hearing is not about Mr. Laughlin or how he treats his employees. It is about how we should structure our corporate laws in this state. If you have some testimony regarding that issue, we would be happy to hear it."
Mr. Durand: "Okay. I would like to say, attorneys do not have to be regulated, as they are officers of the court. They understand the law and they do not operate on how to break the law and avoid taxes. Our courts are clogged, and it would be better to stop fraud before it happens by regulating those people that perpetrate that fraud."
Mr. Durand again entered into a long dissertation concerning Mr. Laughlin and his company's actions. The point he was trying to make was that Mr. Laughlin's action went beyond process of service. He stated that this conduct went into a conduct of business that was not good for the state of Nevada, it was not good for corporations, and was totally out of control. He emphasized it was like a ship without a rudder.
Mr. Scherer: "Are there any questions for Mr. Durand? Thank you, Mr. Durand. Ms. Woodgate, can we ask you one or two more questions before we get out of here. I assume that no one else wants to testify. Could you go ahead and get Mr. Price out of Ways and Means. Mr. Warren will get him. Thank you.
"Have you had an opportunity to look at the information sent by Luke Perry, the promissary note signed agreement. It's the agreement I think Mr. Stucker referred to, that Mr. Regan asked about; it ties the face amount of a promissary note to the price of gold and fluctuates with the price of gold."
Ms. Woodgate: "I haven't seen it."
Mr. Scherer: "Do you have an opinion, given that set of facts, whether it would be a security under our current law, whether it would be covered by securities laws?"
Ms. Woodgate: "I don't have an opinion on that. I do know Mr. Perry was directed by myself to contact our securities division. He did; and he has talked with them. I do not know how far securities division has gone with it because they are a separate division and their investigations do remain private. So, I really don't know what's happened there. I can attempt to find out if they have an ongoing investigation or what has happened."
Mr. Scherer: "I'm not interested in getting into the facts of whether they have confirmed the facts. Again, thats an enforcement function on a policy-making function. In terms of whether they feel that Mr. Perry's allegations, if accurate, would support an action by the division, I'd like to know that."
Ms. Woodgate: "I'll check with them and get back to you."
Mr Scherer. "Thank you. Anyone else have anymore questions? Is there anyone else that wishes to testify other than Mr. Price? We'll stand at ease for a couple of minutes. Let's talk about proposed amendments. Mr. Fowler."
Mr. Scherer: "Mr. Fowler we have from you your original testimony at the original hearing. We also have some handwritten amendments on a copy of the bill, and a letter of April 23rd which has some additional changes. Let's, however, start with your original April 1 written testimony. After the draft of the bill, there is text that says "draft for discussion only" at the top and various other changes to corporate code. Are those additional amendments?"
Mr. Fowler: "The draft marked "draft for discussion only" came as a result of further discussions of the corporate law sub- committee. This was adopted by the business law section. These changes to the statutes on stock splits and reverse stock splits comes about as a result of considerable discussion which, unfortunately, did not get done in time last August for it to be submitted with the original bill draft request."
Mr. Scherer: "But those are additional proposed changes from the business law committee?"
Mr. Fowler: "Yes. It clarifies what is to happen with reverse stock splits and stock splits. In fact Mr. Schumacher, who was here testifying earlier, was very instrumental in working with the committee to hammer out these provisions. He also has knowledge of the statutes; so, if you want another look at it, you could certainly ask Mr. Schumacher. The other changes you see are a different typeface. They were prepared by the secretary of states office to make some additional changes to Chapter 88."
Mr. Scherer: "That NRS 88.330 is amended as follows?"
Mr. Fowler: "Yes. That was amended by the secretary of states office, changing some items with respect to resident agents and changing a few fees."
Mr. Scherer: "Fees?"
Mr. Fowler: "Some of the fees."
Mr. Scherer: "Have you reviewed those changes?"
Mr. Fowler: "Yes."
Mr. Scherer: "You don't have any objections?
Mr. Fowler, "No. None whatsoever."
Mr. Scherer: "Mr. Schumacher do you want to speak?"
Mr. Schumacher: "Yes. The business law section had a conference call we worked out that reversed a stock split. It technically now makes sense. We had a real problem with the statute. People generally became aware of it when they were trying to actually implement the statute with respect to reverse stock splits. Many corporations have a great interest, that are incorporated, on the NASDAQ which has now adopted a minimum trading price scheme. So, when they get into the NASDAQ system and go public, there has to be a mechanism for them to boost that trading price. There was really no mechanism in Nevada law to clearly define and provide procedure for boosting of the trading price. There were also some other requirements which would have made it more costly for the corporation to send out checks for two cents to a shareholder. These are all extremely good changes for better corporate law as it applies to the 400 and some NASDAQ companies incorporated here.
Mr. Fowler: "We have had considerable interest in companies who want to go on NASDAQ; but their assets are such, after the initial public offering, if they kept the number of shares which they had already issued or planning to issue their trading price would be below the minimum. This allows them to reverse stock splits to get that price higher. This is very useful for Nevada corporations going public."
Mr. Scherer: "I understand that. Then we also have, I have a two page document which I believe is in handwriting. Mr. Fowler?"
Mr. Fowler: "That is my handwriting, yes."
Mr. Scherer: "The one change that's different on this first page would be to add in Chapters 98 and 99, in subsection 2, of Section 155, of the bill."
Mr. Fowler: "Right. That is the retroactive portion of the bill with respect to nonprofit corporations."
Mr. Scherer: "The back page is a change to 82.446?"
Mr. Fowler: "That is correct."
Mr. Scherer: "That is not a change in the existing bill."
Mr. Fowler: "It is not an existing bill. Frankly, we just missed it. It would conform to the other changes made in the non-profit area with respect to the subject matters which have been under discussion with Mr. Brorby and Mr. McKenzie on non-profit corporations and foundations."
Mr. Scherer: "With regard to the April 23rd correspondence, we also have Mr. Schumacher's written testimony from today. I believe it was your testimony that if we decide not to go with the direct or opt out provision, that Mr. Schumacher's changes are acceptable to you."
Mr. Fowler: "Yes."
Mr. Scherer: "With that one caveat?"
Mr. Fowler: "That's correct, if no changes were to be made to the bill in a substantive fashion. We believe the changes as presented by Mr. Schumacher would be a good way to go, just to clarify for all time."
Mr. Scherer: "Okay. If we were to do that we would not need, assuming we were to reject the change to the direct or opt out, your April 23rd changes?"
Mr. Fowler: "That's correct."
Mr.Scherer: "Is that correct? Any questions for Mr. Fowler before we ask Mr. Price to talk to us. Thank you. Mr. Price, thank you for coming down."
Mr. Price: "Thank you Mr. Chairman, Assemblyman Bob Price, District 17."
Mr. Price: "I apoligize for coming at the last minute. Interestingly enough, in California they have set up a permanent standing committee with legislators, citizens and so forth. They also have a permanent standing corporate governments commission which looks at all of the various proposals each session that affects corporations. I've often thought this would not be a bad idea, although I didn't get a bill draft in. The way the legislature is funded in their internal operations in California this particular commission is actually funded out of the Senate budget; so, it's not something that had to go through a joint resolution.
Mr. Price discussed his membership in NCSL on this subject. He provided a letter from the chair of this committee, Senator McCorkendale, for the consideration of the committee.
Mr. Price then discussed responses from Dave Venus, a legislator from Delaware. He submitted the responses to the committee along with a response from a Mr. Loratch, for consideration.
Mr. Scherer: "Thank you."
Mr. Scherer: "I appreciate the information. There may be some views we can use, although we might want to pass these along to the Senate with the schedule for a full committee work session on Friday. I know all of the sponsors are anxious to get some technical corrections made, even if they don't make some other policy judgments. One other possible suggestion is that since we are waiting on a final report in July, this might make an appropriate interim study topic."
Mr. Price: "Yes. I would think that it certainly would."
Mr. Scherer: "Thank you very much. Any questions for Assemblyman Price? Thank you for your time. I think that concludes the testimony today. Is the subcommittee prepared to take some action and make some recommendations to the full committee?"
Mr. Gibbons: "As a member of this subcommittee I think the intent of getting this bill moving at some point in time would be to do as you suggested earlier with regard to those proposed amendments. In other words, as suggested by Mr. Schumacher and by Mr. Fowler with regard to the five to three and holding the opt in for the current statutory scheme, a Nevada scheme with regard to the business combination statutes."
Mr. Scherer: "Members of the subcommittee had a number of different discrepancies that were caught as we went through the bill. I have most of those written on my copy of the bill, but I would suggest that, as a I think it was agreed, those were appropriate amendments. The one other idea that we talked about was whether we should use or require a P. O. Box if mail is not received at the street address. There are a number of changes to acquire just a street address, and I understand there is a desire to have a street address so we know where to find people. It might also be important to have a mailing address if it is different."
Mr. Gibbons: "I would be happy to get with you alone with those changes that I noted. I didn't have my copy. I marked up on the last hearing to make those minor adjustments."
Mr. Scherer: "I think I've got those. With regard to the issue of licensing resident agents, I think there may be some merit to considering a very basic scheme to license those people who are not already licensed based on the testimony from Ms. Woodgate. In response to your question on the fiscal note, I don't want to hold this bill up with it. If the subcommittee is interested in pursuing that idea, they should consider dropping that into another bill or asking the committee chairman to drop that into another bill. Another hearing should then be held on that issue alone. Let it move forward on its own merits and not slow this bill down."
Mr. Gibbons: "I think that in view of this bill this is in its best interest."
Mr. Scherer: "Can we consider that a motion then Mr. Gibbons?"
Mr. Gibbons: "I so make that a motion."
Mr. Scherer: "Amend and do pass."
Mr. Regan: "Second."
Mr. Scherer: " Mr. Regan seconds, any comments by members of the subcommittee? All in favor."
All members, aye.
Mr. Scherer: "It passes unanimously. I will seek to get an amendment from Ms. Morgan. If you want to go down with me to talk about the changes you had suggested, we'll try to get the amendment actually printed up by Friday. The bill is on for work session in front of the full committee on Friday.
"Thank you all for your time. I thank all the members of the subcommittee for their time.
"This hearing is adjourned."
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Assembly Committee on Judiciary
Date: May 3, 1993
Page: 1