FINAL BILL REPORT

SHB 1729

                                  C 225 L 88

BYHouse Committee on Commerce & Labor (originally sponsored by Representatives Wang, Patrick and Locke)

Changing provisions relating to corporate takeovers.

House Committe on Commerce & Labor

Senate Committee on Law & Justice

SYNOPSIS AS ENACTED

BACKGROUND:

Until 1987 the validity of state laws limiting corporate acquisitions was doubtful.  However, a 1987 United States Supreme Court case approved an Indiana statute controlling corporate takeovers through regulation of shareholder voting rights.  Since that decision, several states have enacted statutes regulating corporate acquisitions.

During a special session in 1987, legislation was adopted in Washington that prohibits, for five years from the share acquisition date, very large publicly traded corporations with significant contacts in Washington from entering into specified transactions with persons who own 10 percent or more of the outstanding voting shares of the corporation.

To be covered under the law:  a corporation's property subject to taxation in Washington must exceed the value of the corporation's property subject to taxation in all other states; the corporation must have its principal executive offices in Washington; the majority of the corporation's employees must live in Washington; the majority of the corporation's assets must be in Washington; the corporation must employ at least 20,000 Washington residents; and 10 percent of the corporation's shareholders must reside in Washington, 10 percent of the shares of the corporation must be owned by Washington residents, or 5,000 Washington residents must own shares of the corporation.

The law expires December 31, 1988.

SUMMARY:

The prohibitions against corporations entering into specified transactions over a five year period with an acquirer of 10 percent or more of the corporation's shares are extended to all publicly traded domestic corporations that have:  the principal corporate executive office in Washington; and either a majority of the corporation's employees as residents of Washington or more than 1,000 Washington residents as employees.  The prohibitions are also extended to publicly traded foreign corporations that have the principal corporate executive office in Washington;  more than 10 percent of its shareholders as Washington residents, more than 10 percent of its shares owned by Washington residents, or more than 1,000 shares owned by Washington residents;  either a majority of the corporation's employees as residents of Washington or more than 1,000 Washington residents as employees; and a majority, or at least $50 million, of the corporation's assets located in Washington.

The definition of "acquiring person" is changed to exclude persons who own shares on the effective date of the act, who acquire shares by gift or other transaction in which no consideration is exchanged, or who exceed the 10 percent threshold because of action taken by the target corporation.

The prohibition against the termination of 5 percent or more of the employees while the corporation has an acquiring person is clarified.  A presumption is established that terminations over the five year period are prohibited except for terminations that result from death or disability or bona fide voluntary retirement, transfer, resignation or leave of absence.  Bona fide voluntary transfers between the target corporation and its subsidiaries, or between subsidiaries, are not terminations within the meaning of the act.

VOTES ON FINAL PASSAGE:

      House 57  39

      Senate    37    12 (Senate amended)

      House 96   0 (House concurred)

EFFECTIVE:March 23, 1988