Relates to authorized and unissued shares of bank, trust company and investment company stock and changes the presumption as to presumptive rights of shareholders.
Ayes (16): Foley, Onorato, Breslin, Krueger, Klein, Adams, Stewart-Cousins, Diaz, Savino, Peralta, Farley, Johnson O, DeFrancisco, Golden, Marcellino, Ranzenhofer
Ayes W/R (2): Kruger, Bonacic
Excused (1): Morahan
Ayes (61): Adams, Addabbo, Alesi, Aubertine, Bonacic, Breslin, DeFrancisco, Diaz, Dilan, Duane, Espada, Farley, Flanagan, Foley, Fuschillo, Golden, Griffo, Hannon, Hassell-Thomps, Huntley, Johnson C, Johnson O, Klein, Krueger, Kruger, Lanza, Larkin, LaValle, Leibell, Libous, Little, Marcellino, Maziarz, McDonald, Montgomery, Nozzolio, Onorato, Oppenheimer, Padavan, Parker, Peralta, Perkins, Ranzenhofer, Robach, Saland, Sampson, Savino, Schneiderman, Serrano, Seward, Skelos, Smith, Squadron, Stachowski, Stavisky, Stewart-Cousins, Thompson, Valesky, Volker, Winner, Young
Excused (1): Morahan
BILL NUMBER: S7444
TITLE OF BILL :
An act to amend the banking law, in relation to authorized and unissued shares of banks, trust companies, stock-form savings banks, savings and loan associations and investment companies and to change the presumption as to preemptive rights for shareholders of such institutions
This bill would modernize certain provisions of the Banking Law by: (1) allowing various banking institutions to hold authorized but unissued shares; and (2) conforming the Banking Law to the Business Corporation Law with respect to preemptive rights.
SUMMARY OF PROVISIONS :
Section 1 of the bill would amend Banking Law § 4001 to allow banks, trust companies, stock-form savings banks, savings and loan associations, safe deposit companies and investment companies to have authorized but unissued shares. In particular, this section of the bill would allow such institutions to have authorized shares sufficient to meet expected needs of any initial offering or such other amount as permitted by the Banking Board.
Section 2 of the bill would amend Banking Law § 6021 to change the presumption regarding shareholder preemptive rights currently in the Banking Law to conform it to the Business Corporation Law. Pursuant to these amendments, shareholders in corporations chartered under the Banking Law after the effective date of these amendments would only have preemptive rights if provided for in the organization certificate.
The shareholders of a banking corporation whose organization certificate was approved prior to the effective date of the amendments will, unless the corporation amends such certificate, or unless another exception applies, continue to have preemptive rights if there is an issuance of equity shares or securities convertible into equity shares that would adversely affect the shareholders' unlimited dividend rights under Banking Law § 6021(3 )(a) or voting rights under Banking law § 6021(3)(b).
Section 3 of the bill would provide for an immediate effective date.
EXISTING LAW :
Banking Law § 4001 currently provides that the organization certificate for corporations chartered under the Banking Law must set forth the amount of the corporation's capital stock. Because the term "capital stock" is defined as outstanding shares, the Banking Department has interpreted this section to prohibit authorized but unissued shares, except for shares to be issued upon the exercise or conversion of outstanding stock options or securities convertible into common stock.
In practice, this restriction means that a corporation would have to obtain approval of its shareholders to issue additional capital stock, even when additional capital is required by bank regulators. This is sometimes a time-consuming exercise. Similar restrictions do not apply to federally chartered banking corporations or to bank holding companies chartered under New York or Delaware law.
Banking Law § 6021 currently states that unless provided for to the contrary in the organization certificate, shareholders in corporations chartered under the Banking Law have preemptive rights with respect to additional equity offerings by the corporation. This means that in the event of an additional equity offering by the corporation, existing shareholders have the right to purchase within a specified time period additional securities in the corporation so as to maintain their respective proportionate share interests.
LEGISLATIVE HISTORY :
This is a new bill.
STATEMENT IN SUPPORT :
The amendments that would be made in this bill are intended to make the capital raising efforts of newly organized and continuing by banking corporations more flexible. The proposed amendments to Banking Law § 4001 address the problems arising from the need to specifically identify the amount of capita stock that a corporation would have outstanding after its organization. Often, corporations cannot accurately estimate the amount of shares that will be sold or cannot quickly respond to capita raising opportunities.
It would be much more efficient if corporations could have as authorized, but unissued shares, some portion of their capita stock. This would avoid the requirement otherwise set forth in the Banking Law that a corporation must obtain shareholder approval of any amendment to the corporation's organization certificate to issue additional capital. Such authorized but unissued capital stock would be set at amounts equal to that which the corporation expects to issue at its first public offering or such other amounts as would be established by the Banking Board.
The proposed amendments to Banking Law § 6021 likewise are intended to make management of the corporation's capital needs more flexible. The current law reflects a time period when most banking corporations were owned by a relatively few individuals. Such shareholders naturally wanted to maintain their relative ownership interests in the corporation's capital structure.
In contrast, the shares of most banking corporations are today widely held, either directly or through a holding company structure. Therefore, the need to maintain shareholder preemptive rights is no longer a significant issue. This amendment also is inconsistent with changes in corporate law that have occurred in recent years.
BUDGET IMPLICATIONS :
This bill would not have an impact on state finances.
EFFECTIVE DATE : This bill would take effect immediately.
STATE OF NEW YORK ________________________________________________________________________ 7444 IN SENATE April 12, 2010 ___________Introduced by Sen. FOLEY -- (at request of the Banking Department) -- read twice and ordered printed, and when printed to be committed to the Committee on Banks AN ACT to amend the banking law, in relation to authorized and unissued shares of banks, trust companies, stock-form savings banks, savings and loan associations and investment companies and to change the presumption as to preemptive rights for shareholders of such insti- tutions THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM- BLY, DO ENACT AS FOLLOWS: Section 1. Subdivision 3 of section 4001 of the banking law, as amended by chapter 360 of the laws of 1984, is amended to read as follows: 3. The amount of its AUTHORIZED capital stock, the number of shares into which such capital stock shall be divided and the par value of the shares, which capital stock shall amount to not less than the
[amounts]MINIMUM AMOUNT prescribed by the banking board, NOR MORE THAN THE AGGRE- GATE OF (A) THE AMOUNT OF CAPITAL STOCK THE CORPORATION EXPECTS TO SELL IN ITS INITIAL OFFERING OF SHARES AND (B) SUCH ADDITIONAL AMOUNT AS MAY BE APPROVED BY THE BANKING BOARD. S 2. Subdivisions 1, 2, 3, 4 and 5 of section 6021 of the banking law, as added by chapter 849 of the laws of 1964, paragraph (b) of subdivi- sion 5 as amended by chapter 315 of the laws of 2008, are amended to read as follows: 1. As used in this section, the term: (a) "Unlimited dividend rights" means the right without limitation as to amount either to all or to a share of the balance of current or liquidating dividends after the payment of dividends on any shares enti- tled to a preference. (b) "Equity shares" means shares of any class, whether or not preferred as to dividends or assets, which have unlimited dividend rights. (c) "Voting rights" means the right to vote for the election of one or more directors, excluding a right so to vote which is dependent on theEXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets [ ] is old law to be omitted. LBD15513-02-0 S. 7444 2
happening of an event specified in the organization certificate which would change the voting rights of any class of shares. (d) "Voting shares" means shares of any class which have voting rights. (e) "Preemptive right" means the right to purchase shares or other securities to be issued, as such right is defined in this section. (F) "NEW SHARES OR SECURITIES" MEANS NEW EQUITY SHARES OF ANY CLASS OR ANY SHARES OR OTHER SECURITIES CONVERTIBLE INTO EQUITY SHARES OF ANY CLASS. 2. THE PREEMPTIVE RIGHTS PROVIDED FOR IN SUBDIVISION THREE OF THIS SECTION SHALL NOT APPLY TO NEW SHARES OR SECURITIES OF ANY CORPORATION WHOSE ORGANIZATION CERTIFICATE IS APPROVED ON OR AFTER THE EFFECTIVE DATE OF THIS SUBDIVISION, UNLESS EXPRESSLY PROVIDED FOR IN THE ORGANIZA- TION CERTIFICATE OF SUCH CORPORATION, WHICH MAY INCORPORATE BY REFERENCE THE PREEMPTIVE RIGHTS SET FORTH IN THIS SECTION, OR FURTHER MODIFY SUCH PREEMPTIVE RIGHTS. 3. Except as otherwise provided in the organization certificate, and except as provided in this section,
[the holders of equity shares of any class,]in case of the proposed issuance by the corporation of [its equity shares of any class or any shares or other securities convertible into its equity shares of any class, shall,]NEW SHARES OR SECURITIES: (A) if the issuance of the [equity shares proposed to be issued or issuable upon conversion of such other securities]NEW SHARES OR SECURI- TIES would adversely affect the unlimited dividend rights of [such]THE holders OF EXISTING EQUITY SHARES OF ANY CLASS, SUCH HOLDERS SHALL have the right during a reasonable time and on reasonable conditions, both to be fixed by the board, to purchase such NEW shares or securities in such proportions as shall be determined as provided in this section [.]; AND [3. Except as otherwise provided in the organization certificate, and except as provided in this section, the holders of voting shares of any class, in case of the proposed issuance by the corporation of its voting shares of any class or any shares or other securities convertible into its voting shares of any class, shall,](B) if SUCH NEW SHARES OR SECURITIES ARE VOTING SHARES OF ANY CLASS AND the issuance of the [voting shares proposed to be issued or issuable upon conversion of such other securities]NEW SHARES OR SECURITIES would adversely affect the voting rights of [such]THE holders OF EXISTING SHARES OF ANY CLASS, SUCH HOLDERS SHALL have the right during a reason- able time and on reasonable conditions, both to be fixed by the board, to purchase such NEW shares or other securities in such proportions as shall be determined as provided in this section. 4. The preemptive right provided for in [subdivisions two and]SUBDI- VISION three OF THIS SECTION shall entitle stockholders having such rights to purchase the shares or other securities to be offered for sale as nearly as practicable in such proportions as would, if such preemp- tive right were exercised, preserve the relative unlimited dividend rights and voting rights of such holders and at a price or prices not less favorable than the price or prices at which such shares or other securities are proposed to be offered for sale to others, without deduction of such reasonable expenses of and compensation for the sale, underwriting or purchase of such shares or other securities by under- writers or dealers as may lawfully be paid by the corporation. In case each of the shares entitling the holders thereof to preemptive rights does not confer the same unlimited dividend right or voting right, the board shall apportion the shares or other securities to be offered for sale among the stockholders having preemptive rights to purchase them inS. 7444 3
such proportions as in the opinion of the board shall preserve as far as practicable the relative unlimited dividend rights and voting rights of the holders at the time of such offering. The apportionment made by the board shall, in the absence of fraud or bad faith, be binding upon all stockholders. 5. Unless otherwise provided in the organization certificate, shares or other securities offered for sale shall not be subject to preemptive rights UNDER SUBDIVISIONS TWO AND THREE OF THIS SECTION if they: (a) Are to be issued by the board to effect a merger or offered for consideration other than cash; (b) Are to be issued or subjected to options under section one hundred forty-a of this chapter; (c) Are to be issued to satisfy conversion rights theretofore granted by the corporation; (d) Are treasury shares; or (e) Are part of the shares or other securities of the corporation authorized in its original organization certificate and are issued, sold or optioned within two years from the date of filing such certificate. S 3. This act shall take effect immediately.