The last two sentences of Section 1101 of the Corporations Code can be an unwonted surprise to some practitioners. They are intended to ensure fair treatment of shareholders in a merger by imposing two requirements:
Similar requirements with respect to interspecies mergers are found in Corporations Code Section 1113(c).
These requirements potentially give minority shareholders the power to veto a fair merger. Accordingly, the legislature provided in Section 1101.1 of the Corporations Code that these two requirements would not apply to any transaction if the Commissioner of Business Oversight (or certain other specified regulators) approved the terms and conditions of the transaction pursuant to Corporations Code Section 25142 (or specified statutes applicable to the other specified regulators).
Last year, however, the legislature eliminated this fairness hearing exception by amending Section 1101.1. 2015 Cal. Stats., ch. 190, ยง 7. Now, Section 1101.1 provides that Section 1101(b) doesn't apply to any transaction approved by the Commissioner in a fairness hearing. It is hard to divine any logical rationale for such an exception because Section 1101(b) simply provides that the agreement of merger must specify the amendments to the articles incorporation of the surviving corporation to be effected in the merger. The mystery is further compounded by the fact that the legislature did not eliminate the fairness hearing exception with respect to Section 1113(c). The bill effecting the change (AB 1517) was authored by the Assembly Committee on Banking and Finance. Typically, committee bills are technical, non-policy bills. I didn't see anything in any of the committee or floor analysis that explains the reason for this rather significant change to the law.
While this change may seem to be of concern only to California corporations, readers should note that so-called pseudo-foreign corporations subject to Corporations Code Section 2115 are subject to the last two sentences of Section 1101.