CHAPTER 78 - PRIVATE CORPORATIONS

Nevada Companies Act

Nevada - Private Corporations Nevada - Private Corporations Nevada - Private Corporations

COMBINATIONS WITH INTERESTED STOCKHOLDERS

NRS 78.411 Definitions

As used in NRS 78.411 to 78.444, inclusive, unless the context otherwise requires, the words and terms defined in NRS 78.412 to 78.432, inclusive, have the meanings ascribed to them in those sections.

(Added to NRS by 1991, 1200)

NRS 78.412 “Affiliate” defined

“Affiliate” means a person that directly, or indirectly through one or more intermediaries, is controlled by, or is under common control with, a specified person.

(Added to NRS by 1991, 1200)

NRS 78.413 “Associate” defined

“Associate,” when used to indicate a relationship with any person, means:

1. Any corporation or organization of which that person is an officer or partner or is, directly or indirectly, the beneficial owner of 10 percent or more of any class of voting shares;

2. Any trust or other estate in which that person has a substantial beneficial interest or as to which he serves as trustee or in a similar fiduciary capacity; and

3. Any relative or spouse of that person, or any relative of the spouse, who has the same home as that person.

(Added to NRS by 1991, 1200)

NRS 78.414 “Beneficial owner” defined

“Beneficial owner,” when used with respect to any shares, means a person that:

1. Individually or with or through any of its affiliates or associates, beneficially owns the shares, directly or indirectly;

2. Individually or with or through any of its affiliates or associates, has:

(a) The right to acquire the shares, whether the right is exercisable immediately or only after the passage of time, under any agreement, arrangement or understanding, whether or not in writing, or upon the exercise of rights to convert or exchange, warrants or options, or otherwise, but a person is not considered the beneficial owner of shares tendered under an offer for a tender or exchange made by the person or any of his affiliates or associates until the tendered shares are accepted for purchase or exchange; or

(b) The right to vote the shares under any agreement, arrangement or understanding, whether or not in writing, but a person is not considered the beneficial owner of any shares under this paragraph if the agreement, arrangement or understanding to vote the shares arises solely from a revocable proxy or consent given in response to a solicitation made in accordance with the applicable regulations under the Securities Exchange Act and is not then reportable on a Schedule 13D under the Securities Exchange Act, or any comparable or successor report; or

3. Has any agreement, arrangement or understanding, whether or not in writing, for the purpose of acquiring, holding, voting, except voting under a revocable proxy or consent as described in paragraph (b) of subsection 2, or disposing of the shares with any other person who beneficially owns, or whose affiliates or associates beneficially own, directly or indirectly, the shares.

(Added to NRS by 1991, 1200)

NRS 78.416 “Combination” defined

“Combination,” when used in reference to any resident domestic corporation and any interested stockholder of the resident domestic corporation, means any of the following:

1. Any merger or consolidation of the resident domestic corporation or any subsidiary of the resident domestic corporation with:

(a) The interested stockholder; or

(b) Any other corporation, whether or not itself an interested stockholder of the resident domestic corporation, which is, or after the merger or consolidation would be, an affiliate or associate of the interested stockholder.

2. Any sale, lease, exchange, mortgage, pledge, transfer or other disposition, in one transaction or a series of transactions, to or with the interested stockholder or any affiliate or associate of the interested stockholder of assets of the resident domestic corporation or any subsidiary of the resident domestic corporation:

(a) Having an aggregate market value equal to 5 percent or more of the aggregate market value of all the assets, determined on a consolidated basis, of the resident domestic corporation;

(b) Having an aggregate market value equal to 5 percent or more of the aggregate market value of all the outstanding shares of the resident domestic corporation; or

(c) Representing 10 percent or more of the earning power or net income, determined on a consolidated basis, of the resident domestic corporation.

3. The issuance or transfer by the resident domestic corporation or any subsidiary of the resident domestic corporation, in one transaction or a series of transactions, of any shares of the resident domestic corporation or any subsidiary of the resident domestic corporation that have an aggregate market value equal to 5 percent or more of the aggregate market value of all the outstanding shares of the resident domestic corporation to the interested stockholder or any affiliate or associate of the interested stockholder except under the exercise of warrants or rights to purchase shares offered, or a dividend or distribution paid or made, pro rata to all stockholders of the resident domestic corporation.

4. The adoption of any plan or proposal for the liquidation or dissolution of the resident domestic corporation proposed by, or under any agreement, arrangement or understanding, whether or not in writing, with, the interested stockholder or any affiliate or associate of the interested stockholder.

5. Any:

(a) Reclassification of securities, including, without limitation, any splitting of shares, dividend distributed in shares, or other distribution of shares with respect to other shares, or any issuance of new shares in exchange for a proportionately greater number of old shares;

(b) Recapitalization of the resident domestic corporation;

(c) Merger or consolidation of the resident domestic corporation with any subsidiary of the resident domestic corporation; or

(d) Other transaction, whether or not with or into or otherwise involving the interested stockholder, proposed by, or under any agreement, arrangement or understanding, whether or not in writing, with, the interested stockholder or any affiliate or associate of the interested stockholder, which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class or series of voting shares or securities convertible into voting shares of the resident domestic corporation or any subsidiary of the resident domestic corporation which is directly or indirectly owned by the interested stockholder or any affiliate or associate of the interested stockholder, except as a result of immaterial changes because of adjustments of fractional shares.

6. Any receipt by the interested stockholder or any affiliate or associate of the interested stockholder of the benefit, directly or indirectly, except proportionately as a stockholder of the resident domestic corporation, of any loan, advance, guarantee, pledge or other financial assistance or any tax credit or other tax advantage provided by or through the resident domestic corporation.

(Added to NRS by 1991, 1200)

NRS 78.417 “Common shares” defined

“Common shares” means any shares other than preferred shares.

(Added to NRS by 1991, 1202)

NRS 78.418 “Control,” “controlling,” “controlled by” and “under common control with” defined; presumption of control

1. Except as otherwise provided in subsection 2:

(a) “Control,” used alone or in the terms “controlling,” “controlled by” and “under common control with,” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract or otherwise.

(b) A person’s beneficial ownership of 10 percent or more of the voting power of a corporation’s outstanding voting shares creates a presumption that the person has control of the corporation.

2. A person is not considered to have control of a corporation if he holds voting power, in good faith and not for the purpose of circumventing the provisions of this chapter, as an agent, bank, broker, nominee, custodian or trustee for one or more beneficial owners who do not individually or as a group have control of the corporation.

(Added to NRS by 1991, 1202)

NRS 78.421 “Date of announcement” defined

“Date of announcement,” when used in reference to any combination, means the date of the first public announcement of the final, definitive proposal for the combination.

(Added to NRS by 1991, 1202)

NRS 78.422 “Date of consummation” defined

“Date of consummation,” with respect to any combination, means the date of the consummation of the combination or, in the case of a combination as to which a vote of stockholders is taken, the later of:

1. The business day before the vote; or

2. Twenty days before the date of consummation of the combination.

(Added to NRS by 1991, 1202)

NRS 78.423 “Interested stockholder” defined

1. “Interested stockholder,” when used in reference to any resident domestic corporation, means any person, other than the resident domestic corporation or any subsidiary of the resident domestic corporation, who is:

(a) The beneficial owner, directly or indirectly, of 10 percent or more of the voting power of the outstanding voting shares of the resident domestic corporation; or

(b) An affiliate or associate of the resident domestic corporation and at any time within 3 years immediately before the date in question was the beneficial owner, directly or indirectly, of 10 percent or more of the voting power of the then outstanding shares of the resident domestic corporation.

2. To determine whether a person is an interested stockholder, the number of voting shares of the resident domestic corporation considered to be outstanding includes shares considered to be beneficially owned by that person through the application of NRS 78.414, but does not include any other unissued shares of a class of voting shares of the resident domestic corporation which may be issuable under any agreement, arrangement or understanding, or upon exercise of rights to convert, warrants or options, or otherwise.

(Added to NRS by 1991, 1202; A 1993, 968)

NRS 78.424 “Market value” defined

“Market value,” when used in reference to the shares or property of any resident domestic corporation, means:

1. In the case of shares, the highest closing sale price of a share during the 30 days immediately preceding the date in question on the composite tape for shares listed on the New York Stock Exchange, or, if the shares are not quoted on the composite tape or not listed on the New York Stock Exchange, on the principal United States securities exchange registered under the Securities Exchange Act on which the shares are listed, or, if the shares are not listed on any such exchange, the highest closing bid quoted with respect to a share during the 30 days preceding the date in question on the National Association of Securities Dealers, Inc.’s, Automated Quotations System or any system then in use, or if no such quotation is available, the fair market value on the date in question of a share as determined by the board of directors of the resident domestic corporation in good faith.

2. In the case of property other than cash or shares, the fair market value of the property on the date in question as determined by the board of directors of the resident domestic corporation in good faith.

(Added to NRS by 1991, 1203)

NRS 78.426 “Preferred shares” defined

“Preferred shares” means any class or series of shares of a resident domestic corporation that under the bylaws or articles of incorporation of the resident domestic corporation:

1. Is entitled to receive payment of dividends before any payment of dividends on some other class or series of shares; or

2. Is entitled in the event of any voluntary liquidation, dissolution or winding up of the corporation to receive payment or distribution of a preferential amount before any payments or distributions are received by some other class or series of shares.

(Added to NRS by 1991, 1203)

NRS 78.427 “Resident domestic corporation” defined

1. “Resident domestic corporation” is limited to a domestic corporation that has 200 or more stockholders of record.

2. A resident domestic corporation does not cease to be a resident domestic corporation by reason of events occurring or actions taken while the resident domestic corporation is subject to NRS 78.411 to 78.444, inclusive.

NRS 78.428 “Securities Exchange Act” defined

“Securities Exchange Act” means the Act of Congress known as the Securities Exchange Act of 1934, as amended, 15 U.S.C. §§ 78a et seq.

(Added to NRS by 1991, 1203)

NRS 78.429 “Share” defined. “Share” means:

1. Any share or similar security, any certificate of interest, any participation in any profit-sharing agreement, any voting-trust certificate, or any certificate of deposit for a share; and

2. Any security convertible, with or without consideration, into shares, or any warrant, call or other option or privilege of buying shares without being bound to do so, or any other security carrying any right to acquire, subscribe to, or purchase shares.

(Added to NRS by 1991, 1203)

NRS 78.431 “Subsidiary” defined

“Subsidiary” of any resident domestic corporation means any other corporation of which a majority of the outstanding voting shares whose votes are entitled to be cast are owned, directly or indirectly, by the resident domestic corporation.

(Added to NRS by 1991, 1203)

NRS 78.432 “Voting shares” defined

“Voting shares” means shares of stock of a corporation entitled to vote generally in the election of directors.

(Added to NRS by 1991, 1204)

NRS 78.433 Applicability: Generally

NRS 78.411 to 78.444, inclusive, do not apply to any combination of a resident domestic corporation:

1. Which does not, as of the date that the person first becomes an interested stockholder, have a class of voting shares registered with the Securities and Exchange Commission under section 12 of the Securities Exchange Act, unless the corporation’s articles of incorporation provide otherwise.

2. Whose articles of incorporation have been amended to provide that the resident domestic corporation is subject to NRS 78.411 to 78.444, inclusive, and which did not have a class of voting shares registered with the Securities and Exchange Commission under section 12 of the Securities Exchange Act on the effective date of the amendment, if the combination is with a person who first became an interested stockholder before the effective date of the amendment.

NRS 78.434 Applicability: Election not to be governed by provisions

NRS 78.411 to 78.444, inclusive, do not apply to any combination of a resident domestic corporation:

1. Whose original articles of incorporation contain a provision expressly electing not to be governed by NRS 78.411 to 78.444, inclusive, unless the articles of incorporation are subsequently amended to provide that the corporation is subject to NRS 78.411 to 78.444, inclusive;

2. Whose articles of incorporation have been amended pursuant to subsection 1 and the combination is with a person who first became an interested stockholder before the effective date of the amendment;

3. Which, within 30 days after October 1, 1991, adopts an amendment to its bylaws expressly electing not to be governed by NRS 78.411 to 78.444, inclusive, which may be rescinded by subsequent amendment of the bylaws;

4. Which adopts an amendment to its articles of incorporation, approved by the affirmative vote of the holders, other than interested stockholders and their affiliates and associates, of a majority of the outstanding voting power of the resident domestic corporation, excluding the voting shares of interested stockholders and their affiliates and associates, expressly electing not to be governed by NRS 78.411 to 78.444, inclusive, but the amendment to the articles of incorporation is not effective until 18 months after the vote of the resident domestic corporation’s stockholders and does not apply to any combination of the resident domestic corporation with a person who first became an interested stockholder on or before the effective date of the amendment; or

5. Whose articles of incorporation were amended to contain a provision expressly electing not to be governed by NRS 78.411 to 78.444, inclusive, before the date the corporation first became a resident domestic corporation.

NRS 78.436 Applicability: Combination with inadvertent interested stockholder

NRS 78.411 to 78.444, inclusive, do not apply to any combination of a resident domestic corporation with an interested stockholder of the resident domestic corporation who became an interested stockholder inadvertently, if he:

1. As soon as practicable, divests himself of a sufficient amount of the voting power of the corporation so that he no longer is the beneficial owner, directly or indirectly, of 10 percent or more of the outstanding voting power of the resident domestic corporation; and

2. Would not at any time within 3 years preceding the date of announcement with respect to the combination have been an interested stockholder but for the inadvertent acquisition.

(Added to NRS by 1991, 1207; A 1993, 968)

NRS 78.437 Applicability: Combination with interested stockholder as of certain date

NRS 78.411 to 78.444, inclusive, do not apply to any combination with an interested stockholder who:

1. Was an interested stockholder on January 1, 1991; or

2. Who first became an interested stockholder on the date that the resident domestic corporation first became a resident domestic corporation solely as a result of the corporation becoming a resident domestic corporation.

NRS 78.438 Combination prohibited within 3 years after stockholder becomes interested; exception; action on proposal

1. Except as otherwise provided in NRS 78.433 to 78.437, inclusive, a resident domestic corporation may not engage in any combination with any interested stockholder of the resident domestic corporation for 3 years after the date that the person first became an interested stockholder unless the combination or the transaction by which the person first became an interested stockholder is approved by the board of directors of the resident domestic corporation before the person first became an interested stockholder.

2. If a proposal in good faith regarding a combination is made in writing to the board of directors of the resident domestic corporation, the board of directors shall respond, in writing, within 30 days or such shorter period, if any, as may be required by the Securities Exchange Act, setting forth its reasons for its decision regarding the proposal.

3. If a proposal in good faith to purchase shares is made in writing to the board of directors of the resident domestic corporation, the board of directors, unless it responds affirmatively in writing within 30 days or such shorter period, if any, as may be required by the Securities Exchange Act, is considered to have disapproved the purchase.

NRS 78.439 Authorized combinations: General requirements

A resident domestic corporation may not engage in any combination with an interested stockholder of the resident domestic corporation after the expiration of 3 years after the person first became an interested stockholder other than a combination meeting all of the requirements of the articles of incorporation of the resident domestic corporation and either the requirements specified in subsection 1, 2 or 3 or all of the requirements specified in NRS 78.441 to 78.444, inclusive:

1. A combination approved by the board of directors of the resident domestic corporation before the date that the person first became an interested stockholder.

2. A combination with an interested stockholder if the transaction by which the person became an interested stockholder was approved by the board of directors of the resident domestic corporation before the person became an interested stockholder.

3. A combination approved by the affirmative vote of the holders of stock representing a majority of the outstanding voting power not beneficially owned by the interested stockholder proposing the combination, or any affiliate or associate of the interested stockholder proposing the combination, at a meeting called for that purpose no earlier than 3 years after the date that the person first became an interested stockholder.

NRS 78.441 Authorized combinations: Consideration to be received by disinterested holders of common shares

A combination engaged in with an interested stockholder of the resident domestic corporation more than 3 years after the date that the person first became an interested stockholder may be permissible if the aggregate amount of the cash and the market value, as of the date of consummation, of consideration other than cash to be received per share by all of the holders of outstanding common shares of the resident domestic corporation not beneficially owned by the interested stockholder immediately before that date is at least equal to the higher of the following:

1. The highest price per share paid by the interested stockholder, at a time when he was the beneficial owner, directly or indirectly, of 5 percent or more of the outstanding voting shares of the corporation, for any common shares of the same class or series acquired by him within 3 years immediately before the date of announcement with respect to the combination or within 3 years immediately before, or in, the transaction in which he became an interested stockholder, whichever is higher, plus, in either case, interest compounded annually from the earliest date on which the highest price per share was paid through the date of consummation at the rate for one-year obligations of the United States Treasury from time to time in effect, less the aggregate amount of any dividends paid in cash and the market value of any dividends paid other than in cash, per common share since the earliest date, but no more may be subtracted than the amount of the interest.

2. The market value per common share on the date of announcement with respect to the combination or on the date that the person first became an interested stockholder, whichever is higher, plus interest compounded annually from that date through the date of consummation at the rate for one-year obligations of the United States Treasury from time to time in effect, less the aggregate amount of any dividends paid in cash and the market value of any dividends paid other than in cash, per common share since that date, but no more may be subtracted than the amount of the interest.

NRS 78.442 Authorized combinations: Consideration to be received by disinterested holders of class or series of shares other than common shares

A combination engaged in with an interested stockholder of the resident domestic corporation more than 3 years after the date that the person first became an interested stockholder may be permissible if the aggregate amount of the cash and the market value, as of the date of consummation, of consideration other than cash to be received per share by all of the holders of outstanding shares of any class or series of shares, other than common shares, of the resident domestic corporation not beneficially owned by the interested stockholder immediately before that date is at least equal to the highest of the following, whether or not the interested stockholder has previously acquired any shares of the class or series of shares:

1. The highest price per share paid by the interested stockholder, at a time when he was the beneficial owner, directly or indirectly, of 5 percent or more of the outstanding voting shares of the corporation, for any shares of that class or series of shares acquired by him within 3 years immediately before the date of announcement with respect to the combination or within 3 years immediately before, or in, the transaction in which he became an interested stockholder, whichever is higher, plus, in either case, interest compounded annually from the earliest date on which the highest price per share was paid through the date of consummation at the rate for one-year obligations of the United States Treasury from time to time in effect, less the aggregate amount of any dividends paid in cash and the market value of any dividends paid other than in cash, per share of the class or series of shares since the earliest date, but no more may be subtracted than the amount of the interest.

2. The highest preferential amount per share to which the holders of shares of the class or series of shares are entitled in the event of any voluntary liquidation, dissolution or winding up of the resident domestic corporation, plus the aggregate amount of any dividends declared or due to which the holders are entitled before payment of the dividends on some other class or series of shares, unless the aggregate amount of the dividends is included in the preferential amount.

3. The market value per share of the class or series of shares on the date of announcement with respect to the combination or on the date that the person first became an interested stockholder, whichever is higher, plus interest compounded annually from that date through the date of consummation at the rate for one-year obligations of the United States Treasury from time to time in effect, less the aggregate amount of any dividends paid in cash and the market value of any dividends paid other than in cash, per share of the class or series of shares since that date, but no more may be subtracted than the amount of the interest.

NRS 78.443 Authorized combinations: Required form and distribution of consideration

The consideration to be received by holders of a particular class or series of outstanding shares, including common shares, of the resident domestic corporation in the combination pursuant to NRS 78.441 and 78.442, must be in cash or in the same form as the interested stockholder has used to acquire the largest number of shares of the class or series of shares previously acquired by it, and the consideration must be distributed promptly.

(Added to NRS by 1991, 1206)

NRS 78.444 Authorized combinations: Restrictions on beneficial ownership of additional voting shares by interested stockholder

A combination may be permissible if after the date that the person first became an interested stockholder and before the date of consummation with respect to the combination, the interested stockholder has not become the beneficial owner of any additional voting shares of the resident domestic corporation except:

1. As part of the transaction that resulted in his becoming an interested stockholder;

2. By virtue of proportionate splitting of shares, dividends distributed in shares, or other distributions of shares in respect of shares not constituting a combination;

3. Through a combination meeting all of the conditions of NRS 78.439; or

4. Through a purchase at any price that, if the price had been paid in an otherwise permissible combination whose date of announcement and date of consummation were the date of the purchase, would have satisfied the requirements of NRS 78.441, 78.442 and 78.443.

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