SENATE BILL REPORT

SHB 1729

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

Senate Hearing Date(s):February 22, 1988; February 23, 1988

Majority Report:  Do pass as amended.

      Signed by Senators Pullen, Chairman; McCaslin, Vice Chairman; Halsan, Hayner, Madsen, Nelson, Newhouse.

Senate Staff:Dick Armstrong (786-7460)

                  February 23, 1988

AS REPORTED BY COMMITTEE ON LAW & JUSTICE, FEBRUARY 23, 1988

BACKGROUND:

Until 1987, the validity of state regulation over corporate mergers 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 legislative session in 1987, legislation was enacted that prohibits, for five years from the share acquisition date, very large publicly traded corporations with significant contacts in the state 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:  (1) 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; (2) the corporation must have its principal executive offices in Washington; (3) the majority of the corporation's employees must live in Washington; (4) the majority of the corporation's assets must be in Washington; (5) the corporation must employ at least 20,000 Washington residents; and (6) 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 5 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:  (1)  the principal corporate executive office in Washington; and (2) 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:  (1) the principal corporate executive office in Washington; (2)  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; (3) either a majority of the corporation's employees as residents of Washington or more than 1,000 Washington residents as employees; and (4)  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 five percent or more of the employees while the corporation has an acquiring person is clarified.  A presumption is established that terminations over the 5 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.

If a prohibited termination of employees occurs, the target corporation and subsidiaries are required to pay severance pay to the employees terminated during the 5 year period, whether the termination occurred before or after the 5 percent threshold was reached.  The amount of severance pay is equal to three months' wages and benefits for each year of employment.

The statute's expiration date is eliminated.

SUMMARY OF PROPOSED SENATE AMENDMENT:

A section in the bill is deleted which allowed severance pay to employees who are terminated in a prohibited manner.

Appropriation:    none

Revenue:    none

Fiscal Note:      none requested

Senate Committee - Testified: Representative Wang, Sponsor; Tom Baker, Machinist Union; Evelyn Sroufe, Perkins Coie Law Firm