Ohio § 1701.832

§ 1701.832.

(A) In enacting Amended Substitute House Bill No. 822 of the 114th general assembly,

which amended sections 1701.01, 1701.11, 1701.37, 1701.48, 1707.01, 1707.23, 1707.26,

1707.29, and 1707.99 and enacted sections 1701.831 and 1707.042 of the Revised Code , the general assembly found and continues to find that: (1) Existing Ohio corporate law was designed to deal with traditional methods of transfer

of control of Ohio corporations.  The tender offer has evolved as an alternative device to acquire control of a public

corporation that has been in widespread use in the past several decades.  The acquisition of significant blocks of the securities of a public company in the

open market or private transactions in connection with actual or apparent efforts

to acquire control has become more common in recent years and has further complicated

the impact of tender offers upon a corporation and its shareholders.  Numerous Ohio corporations have been the subject of tender offers and accumulations

of significant blocks of securities. (2) The accumulation of a large block of a corporation's voting shares, or other securities

convertible into voting shares, through direct or indirect acquisition from one or

more existing shareholders of the corporation has not been subject to the normal corporate

approval mechanisms involved in other typical types of acquisition transactions such

as mergers, consolidations, combinations, and majority share acquisitions.  Such accumulations, however, can result in shifts of effective corporate control

and hence, from a business and financial perspective, directly or indirectly, can

result in significant changes in a variety of basic corporate circumstances identical

or substantially similar to those arising as a result of the above-mentioned transactions.  For instance, a change in corporate control accompanying a large accumulation of

shares will very often result in a fundamental change in the ongoing business of the

corporation and a concomitant fundamental change in the nature of the shareholders'

investment in it.  Thus the potential that such changes in corporate circumstances will occur gives

rise to basic issues concerning the internal affairs of the corporation typical of

those arising in mergers, consolidations, combinations, and majority share acquisitions.  The form of the transaction in which such issues arise should not alter the basic

corporate mechanisms by which such issues are presented and resolved. (3) Tender offers almost always involve a change in corporate control and, therefore,

give rise to these same basic issues concerning internal corporate affairs.  Although tender offers in theory offer shareholders the opportunity to consider

such issues in deciding whether or not to tender their shares, in practice they do

not.  Tender offers are coercive in the sense that shareholders are normally concerned

that a majority of their fellow shareholders will tender their shares, leaving them

in a minority position with one controlling shareholder.  Thus, shareholders often feel compelled to tender their shares, regardless of how

they feel about the corporate control issues inherent in any tender offer.  The opportunity for reasoned decision-making is further hindered by the short time

periods in which tender offers can be consummated, the structures of many recent tender

offers, which are designed to encourage prompt tenders, and the fact that individual

shareholders typically receive or obtain tender offer materials much later than institutional

shareholders. (4) It is in the public interest for shareholders to have a reasonable opportunity to

express their views by voting on a proposed shift of control, an opportunity currently

available under Ohio general corporation law, Chapter 1701. of the Revised Code, in

transactions with similar effects.  The general assembly also believes that it is in the public interest for Ohio securities

laws, Chapter 1707. of the Revised Code, to provide evenhanded protection of offerors

and shareholders from fraudulent and manipulative transactions arising in connection

with control acquisitions. (5) Initial state efforts to deal with tender offer developments have been questioned

by the federal courts.  The general assembly observes that responsibility for general corporate laws is

the function of state legislation and that no federal law of corporations exists.  The general assembly observes that securities law protection of state residents

has long been recognized as an appropriate subject of state law regulation under the

federal system.  The general assembly acknowledges an in loco parentis responsibility to shareholders

who invest in corporations created under the laws of Ohio and to shareholders generally

who reside in Ohio. (B) Sections 1701.01, 1701.11, 1701.37, 1701.48, 1707.01, 1707.23, 1707.26, 1707.29,

and 1707.99, as amended by Amended Substitute House Bill No. 822 of the 114th general

assembly, and sections 1701.831 and 1707.042 , as enacted by that act, were a recognition of the state's responsibility with respect

to the subject matter of the act.  Nevertheless, with a view to avoiding an undue burden on interstate commerce, as

expressed in recent court decisions, the amendments were designed to have the minimum

impact upon interstate commerce consistent with Ohio responsibility in respect to

the subject matter.  Accordingly, the security law amendments made by that act to sections 1707.23, 1707.26,

1707.29, and 1707.99 and in newly enacted section 1707.042 of the Revised Code were limited to application to Ohio resident investors, and the corporate law amendments

made by that act to sections 1701.01, 1701.11, 1701.37, and 1701.48 and in newly enacted section 1701.831 of the Revised Code were limited to corporations created under the laws of Ohio with the strong Ohio

ties provided in the amendments.  The corporate legislation does not include a requirement for Ohio resident investors

because of the difficulty of ascertainment by potential acquirers and others of the

residence of shareholders.  The general assembly finds that corporations satisfying the jurisdictional nexus

provided by the amendments may be deemed to have a substantial and significant shareholder

base in the state. (C) The general assembly confirms all of the findings of this section as enacted by Amended

Substitute House Bill No. 822 of the 114th general assembly, except that the general

assembly declares that, from the effective date of this amendment, November 2, 1989,

and the concurrent amendment of section 1701.11 of the Revised Code by the addition of division (B)(9)(a)(ii) to that section, the standards of that

division are permitted, as an alternative to the ties with Ohio essential to the status

of a control share acquisition, to qualify for the authorized restrictions on transfer

of shares.  The general assembly further finds that the omission of a reference to “1701.01”

immediately following the phrase “the corporate law amendments in sections” in the

enactment of division (B) of this section was inadvertent. (D) The general assembly confirms all of the findings of this section as enacted by Amended

Substitute House Bill No. 822 of the 114th general assembly, and as amended by Amended

Substitute House Bill No. 358 of the 118th general assembly, and further finds all

of the following: (1) Although Ohio general corporation law, Chapter 1701. of the Revised Code, requires

that a special meeting be held to enable shareholders of an issuing public corporation

to vote on any control share acquisition, it describes meeting procedures, like other

states, primarily in general terms. (2) Where the law, or the articles of incorporation and code of regulations of the issuing

public corporation, do not mandate specific meeting procedures, the directors of the

corporation must define appropriate procedures consistent with their fiduciary duties

as provided in section 1701.59 of the Revised Code .  In carrying out these duties, practices and procedures have developed from experience

in this state and elsewhere to ensure fair and efficient meetings.  These practices and procedures include the use of a variety and number of presumptions

and forms of proxy. (3) The use of presumptions and forms of proxy reflects the fact that, in this state

and other states with similar laws, efficiency and finality are necessary priorities

over precision and certitude in the conduct of a meeting.  It is the responsibility of the directors to utilize practices and procedures, including

presumptions and forms of proxy, that are consistent with their fiduciary duties.