Changes in the Model Business Corporation Act--Proposed Amendments Relating to Appraisal Rights (Sections 1.40 and 6.40 and Chapter 13)

Abstract 

The Committee has reached a consensus on a comprehensive revision of Chapter 13–Appraisal Rights and Sections 1.40 and 6.40. 

The Corporate Laws Committee of the ABA Business Law Section (the “Committee”) develops and proposes changes in the Model Business Corporation Act (the “Model Act”). The Committee has approved, on second reading, proposed amendments relating to appraisal rights in sections 1.40 and 6.40, chapter 13, and associated sections of the Official Comment (the “Amendments”), and invites comments from interested persons. Comments should be addressed to Steven M. Haas, Chair, Corporate Laws Committee, Hunton Andrews Kurth LLP, 951 E. Byrd Street, Richmond, VA 23219, or sent to him by e-mail at [email protected]. Comments should be received by October 15, 2024, in order to be considered by the Committee before adoption of the Amendments on third reading.

Background

The Committee has focused at great length on proposals to reformulate the standards, conditions, and procedures that govern appraisal rights under the Model Act. After careful consideration, the Committee has reached a consensus on a comprehensive revision of Chapter 13–Appraisal Rights.

The Amendments—like the existing statute—recognize the two purposes for which appraisal has historically been provided. When corporations were first permitted to approve transactions such as mergers by less than unanimous consent, appraisal was provided to allow shareholders to exit from the changed enterprise (the “exit” purpose). More recently, appraisal has been used as a “valuation” remedy when a dissenting shareholder contends the consideration in the transaction does not provide “fair value” for its shares (the “valuation” purpose). The Amendments recognize both of these purposes but narrow the circumstances for which appraisal is provided in each case.

The rationale for this narrowing of appraisal is that the existing statute provides for appraisal in many cases where the Committee believes it is no longer appropriate or necessary. Under existing chapter 13, appraisal is provided for almost every transaction requiring shareholder approval unless there is a liquid market for the corporation’s shares and the consideration in the transaction is cash or liquid equity securities (a “market out”). Consequently, for companies that are not publicly traded, virtually all such transactions will trigger appraisal rights. This is the case even if there are no conflicts of interest and all actions by the corporation and its directors, officers, advisors, and shareholders were carried out scrupulously in accordance with the highest possible standards. The Committee believes this is overbroad. The existing provision presumes that any transaction requiring a shareholder vote creates a substantial enough change in the corporation to necessitate providing an “exit” for shareholders if a market out is not available. But approval of significant matters by majority vote is no longer a novel concept, and corporation law has for decades allowed a majority vote to approve decisions that result in substantial changes to the business of the corporation that bind all shareholders. Accordingly, the Amendments provide appraisal for the “exit” purpose only when shareholders, in exchange for their shares of the corporation, would receive ownership interests in a fundamentally different type of entity, such as a nonprofit corporation, partnership, LLC, or business trust. In such a circumstance, the legal framework governing the entity—not merely the business of the corporation—may be changed so substantially that it would be unfair to compel a dissenting shareholder to invest under those new and different rules, even if the majority is willing. Thus, in such a situation the Amendments provide appraisal unless an exit is available through a “market out.”

In terms of the newer “valuation” purpose for appraisal, existing chapter 13 states that appraisal is provided only “when uncertainty concerning the fair value of the affected shares may cause reasonable differences about the fairness of the terms of the corporate action.” But this suggests the premise that in the case of non-public corporations there will always be reasonable cause to question the fairness of the terms of every transaction. The Committee believes this, too, is overbroad. Accordingly, the Amendments provide appraisal for “valuation” purposes only in situations when major shareholders or officers or directors may have conflicts of interest that would raise concerns about the value achieved in the transaction. These are generally defined in the Amendments as “interested transactions.” Like the existing Model Act, the Amendments recognize that when such conflicts of interest exist, the market price of a share may not reflect its “fair value.” Consequently, the Amendments provide appraisal for “interested transactions,” even if the “market out" would otherwise be available.

The Amendments add significant detail to the definitions of “interested person” and “interested transaction,” which will trigger the right to appraisal. The existing definition of “interested transaction” in chapter 13 is stated in general terms, and the Committee believes that specificity and detail are necessary in the Amendments to enable corporate planners and parties to transactions to determine with greater certainty whether a transaction will trigger appraisal. This is reflected in the Amendments’ emphasis on definitions with bright line tests. As with any bright line test, hypotheticals can be constructed that one might argue should be on the other side of the line. For cases in which the definition of “interested transaction” is arguably over-inclusive, however, the definition of “fair value” may discourage the use of appraisal when the transaction was the result of a process likely to produce fair value. For cases in which the definition of “interested transaction” is arguably under-inclusive, breach of duty litigation remains available if warranted.

Finally, the Amendments refine the descriptions of the procedural steps for obtaining appraisal but do not disturb the overall process. The existing statute begins with the corporation providing notice to the shareholders when appraisal is or may be available, requires additional notices from the corporation to the shareholders and vice versa, and concludes with an appraisal litigation that the corporation initiates. This multi-step process between the corporation and the shareholder was designed to encourage a settlement on the fair value of the shares rather than a resort to a judicial determination. Its basic structure is retained in the Amendments, although the Amendments add detail and clarify certain ambiguities that courts might otherwise be required to fill on a case-by-case basis. Most significantly, the Amendments still require the corporation, before the judicial appraisal proceeding is commenced, to make an initial payment to dissenting shareholders of the amount the corporation deems to be the fair value of the shares (unless the shares were acquired after announcement of the transaction).

The Amendments also eliminate any question about the scope of the court’s authority in an appraisal case by stating that the court is to determine not only the fair value of the shares, but may also decide all issues arising under chapter 13. They further include several modifications in the appraisal process that make it easier and more flexible for shareholders. For example, after the first notice regarding appraisal from the shareholder to the corporation, the Amendments allow the beneficial owner of the shares to take all other actions in the appraisal process without further involvement of the record owner of the shares. In addition, the Amendments revise the definitions of “beneficial shareholder” and “voting trust beneficial owner” in section 1.40 to clarify that those definitions do not overlap. Further, because payments resulting from the appraisal process resemble the satisfaction of a judgment more than a dividend, the Amendments exempt appraisal payments from the limitations on distributions to shareholders in section 6.40.

The Amendments also eliminate two concepts from the existing statute. First, existing chapter 13 requires that if appraisal rights are asserted, they must be asserted with respect to all of a beneficial shareholder’s or voting trust beneficial owner’s shares of a class or series (a “dissent all shares” rule). The operation of this requirement in the multistep appraisal process creates complexity and risks inadvertent and inconsequential mistakes that disqualify a shareholder from obtaining appraisal. In light of this complexity and risk and the significant reduction in the types of transactions for which appraisal will be available under the Amendments, the “dissent all shares” rule was eliminated. Possible concerns about “appraisal arbitrage” or “gaming the system” were not viewed as sufficient to justify retaining it. This change also provides more flexibility to shareholders.

Second, the Amendments entirely eliminate existing section 13.40. That section forecloses various legal actions and injunctive and other equitable relief in actions brought by shareholders for transactions listed in section 13.02 after shareholders have approved the transaction—regardless of whether the transaction triggered appraisal rights. After considering the exclusions and numerous other exceptions to the section, it was not clear what, if any, action that would otherwise state a claim would be precluded by the section. Further, the prohibition on certain injunctive relief seemed an unwise limitation on the discretion of the court, making money damages against the directors and officers the only available remedy even where enjoining or rescinding the transaction may be preferable both to shareholders and defendants.

Proposed Amendments

The Committee proposes changes to section 1.40, section 6.40, and chapter 13 of the Model Act and associated sections of the Official Comment as set forth below. The proposed Amendments appear as follows:

• • Section 1.40, section 6.40, and chapter 13, text and Official Comment, marked to show changes to the existing provisions, with deletions shown by strikeout and additions by underscoring, followed by
• • Section 1.40, section 6.40, and chapter 13, text and Official Comment, as proposed to be amended.

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SECTION 1.40, SECTION 6.40, AND CHAPTER 13, TEXT AND OFFICIAL COMMENT, MARKED TO SHOW CHANGES

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§ 1.40. ACT DEFINITIONS

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“Beneficial shareholder” means a person who owns the beneficial interest in shares, which may be a record shareholder or a person on whose behalf shares are registered in the name of an intermediary or nominee, but does not include a voting trust beneficial owner with respect to shares held in a voting trust.

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“Voting trust beneficial owner” means an owner of a beneficial interest in shares of the corporation held in a voting trust established pursuant to section 7.30(a). A voting trust beneficial owner is not a “beneficial shareholder” with respect to the shares held in the voting trust.

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§ 6.40. DISTRIBUTIONS TO SHAREHOLDERS

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(h) This section shall not apply to (i) amounts paid with respect to a shareholder’s shares in connection with appraisal under chapter 13 pursuant to sections 13.24, 13.25 or 13.30 or as a resolution or in satisfaction of an assertion of appraisal rights, or (ii) to distributions in liquidation under chapter 14.

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CHAPTER 13

Appraisal Rights

Subchapter A.

RIGHT TO APPRAISAL AND PAYMENT FOR SHARES

§ 13.01. Definitions

§ 13.02. Right to appraisal

§ 13.03. Assertion of rights by nominees and beneficial shareholdersSHARES FOR WHICH APPRAISAL MAY BE ASSERTED

§ 13.04. Consequences of voting, consenting, or tendering

Subchapter B.

PROCEDURE FOR EXERCISE OF APPRAISAL RIGHTS

§ 13.20. Notice of appraisal rights

§ 13.21. Notice of intent to demand payment and consequences of voting or consentingassert appraisal rights

§ 13.22. Appraisal notice and form

§ 13.23. Perfection ofAssertion of appraisal rights; right to withdraw; restoration of rights

§ 13.24. Payment

§ 13.25. After-acquired shares

§ 13.26. Procedure if shareholder dissatisfied with payment or offer or denied payment

Subchapter C.

JUDICIAL APPRAISAL OF SHARES

§ 13.30. Court action

§ 13.31. Court costs and expenses

Subchapter D.

OTHER REMEDIES

§ 13.40. Other remedies limited

INTRODUCTORY COMMENT

Chapter 13 provides appraisal only in two general cases. The first is where the circumstances surrounding a specified corporate action indicate that there may be a conflict of interest that calls into question the valuation achieved in the transaction. Chapter 13 defines these “interested transactions” based on objective criteria so the parties will be able to determine whether a particular transaction will trigger appraisal.

The second general case in which chapter 13 provides appraisal is when the nature of equity consideration received in one of the specified transactions is significantly different from shares in the existing corporation, such as partnership interests or nonprofit corporation shares. In these circumstances, chapter 13 provides appraisal to give an exit for dissenting shareholders unless the dissenter’s shares can be sold in a relatively liquid market, as described in section 13.02(b).

Each corporate action for which appraisal is afforded under chapter 13 is one that requires a shareholder vote, other than (i) a second-step merger or share exchange under section 11.04( j), in which the tender of shares in the related offer is the functional equivalent of an affirmative vote, and (ii) a short-form merger under section 11.05 in which the corporation is the subsidiary and the merger can be forced by the parent with no action by the corporation. With one exception for an interested section 12.02 sale of assets, shareholders are not entitled to appraisal if the corporate action will not alter the terms of the class or series of shares that they hold. For example, statutory appraisal rights are not available for shares of any class or series in a merger that remain outstanding after the merger, nor are appraisal rights available for shares of any class or series that are not included in a share exchange. Appraisal is also not triggered by a voluntary dissolution under chapter 14 because the dissolution does not affect the liquidation rights of the shares of any class or series.

Section 13.02(a)(6) sets forth a list of actions for which the corporation may choose to provide statutory appraisal. Additionally, section 13.02(c) permits a provision in the articles of incorporation that limits or eliminates statutory appraisal rights for preferred shares, subject to certain conditions. Chapter 13 does not make appraisal an exclusive remedy, restrict claims for breach of duty, or impose limitations on the availability of any other legal or equitable remedy for proposed or completed corporate actions described in section 13.02(a).

Subchapter A.

RIGHT TO APPRAISAL AND PAYMENT FOR SHARES

§13.01. DEFINITIONS

In this chapter:

“Acquiror” means each of the following other than the corporation:

• (i) an entity that merges with the corporation in a merger or is a survivor created in the merger;
• (ii) an entity that acquires shares of the corporation in a share exchange;
• (iii) an entity that acquires assets of the corporation in a disposition of assets subject to section 12.02;
• (iv) the domesticated corporation in a domestication; and
• (v) the converted entity in a conversion.

“Affiliate” means a person that directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with another person or is a senior executive of such person. For purposes of section 13.02(b)(4)this definition, a person is deemed to be an affiliate of its senior executives.

“Beneficial owner,” means, for purposes of the definitions of “interested person” and “interested transaction” in this section 13.01, any person that, directly or indirectly, through any contract, arrangement, or understanding, other than a revocable proxy appointment, has or shares the power to exercise, or direct the exercise of, voting power; except that a member of a national securities exchange is not deemed to be a beneficial owner of securities held directly or indirectly by it on behalf of another person if the member is precluded by the rules of the exchange from voting without instruction on contested matters or matters that may affect substantially the rights or privileges of the holders of the securities to be voted. The terms “beneficially own” and “beneficial ownership” have correlative meanings.

“Control” (including the term “controlled by”) means having the power, directly or indirectly, whether through the ownership of shares or eligible interests, by contract, or otherwise, (i) to elect or remove a majority of the members of the board of directors or other governing body of an entity or (ii) to direct or cause the direction of the management and policies of an entity.

“Controlled affiliate” of a person means an affiliate that such person controls. An individual being a senior executive of an entity does not, by itself, demonstrate that the entity is a controlled affiliate of the individual.

“Controlling affiliate” of a person means an affiliate that controls such person. An individual being a senior executive of an entity does not, by itself, demonstrate that the individual is a controlling affiliate of the entity.

“Corporation” means the domestic corporation that is the issuer of the shares held by a shareholder demandingthat may be subject to appraisal under this chapter and, for matters covered in sections 13.22 through 13.31, includes the survivor of a merger, as defined in section 11.01.

“Excluded shares” means, when the corporate action is a merger or share exchange described in section 11.04( j)(7), shares acquired pursuant to an offer described in section 11.04( j)(2) if the offer complies with the requirements of sections 11.04( j)(1) through (5) and 11.04( j)(8) and results in the satisfaction of the condition in section 11.04( j)(6).

“Fair value” of a share means the portion of the value of the corporation’s sharescorporation attributable to the interest in the corporation represented by the share. Fair value shall be determined:

• (i) immediately before the effectiveness of the corporate action to which the shareholder objectsgiving rise to the right to appraisal;
• (ii) usingconsidering customary and current valuation concepts and techniques generally employed for similar businesses in the context of the transaction requiringcorporate action giving rise to the right to appraisal and such other methods and factors as the court deems appropriate; and
• (iii) without discounting for lack of marketability or minority status except, if appropriate, for amendments to the articles of incorporation pursuant to section 13.02(a)(5)of the share.

“Immediate family member” of an individual means the individual’s spouse and any child, stepchild, grandchild, parent, step-parent, grandparent, sibling, step sibling, half sibling, aunt, uncle, niece, or nephew (or spouse of any such person) of the individual or of the individual’s spouse, and any other individual living in the same home as the individual.

“Interest” means, for purposes of sections 13.24 through 13.30, interest from the date the corporate action becomes effective until the date of payment, at the rate of interest on judgments in this state on the effective date of the corporate action.

“Interested transaction” means a corporate action described in section 13.02(a), other than a merger pursuant to section 11.05, involving an interested person in which any of the shares or assets of the corporation are being acquired or converted. As used in this definition:

(i) “Interested person” means a person, or an affiliate of a(other than the corporation and controlled affiliates of the corporation) of such person, who at any time during the one-year period immediately preceding approval by the board of directors of the corporate action:

• (Ai) was the beneficial owner of 2015% or more of the voting power of the corporation, other than as owner of excluded shares;
• (Bii) had the power, contractually or otherwise, other than as owner of excluded shares, to cause the appointment or election of 25% or more of the directors to the board of directors of the corporation of 15% or more of the number of directors specified in or fixed in accordance with the articles of incorporation or bylaws; or
• (Ciii) was a senior executive or director of the corporation (or a senior executive of any controlling affiliate of the corporation, and that senior executive or director will receive, as a result) who beneficially owned voting power of the corporation, if, at any time during the one-year period immediately preceding approval by the board of directors of the corporate action, a financial benefit not generally available to other shareholders as such, other than:such senior executives and directors, in the aggregate, beneficially owned more than 5% of the voting power of the corporation.

In each of subsections (i), (ii), and (iii), the voting power beneficially owned by such persons shall not include such power attributed to them derived from excluded shares.

“Interested transaction” means a corporate action described in sections 13.02(a)(1)(i), (ii), (iii), (iv), or (v) in which any of the shares or assets of the corporation are being acquired, converted, or exchanged and any of the following applies:

• (i) As a result of or in connection with the corporate action, an interested person, an immediate family member of an interested person, or a controlled affiliate (other than the corporation) of an interested person or of such an immediate family member, had obtained or received before the measurement date for the corporate action (or will obtain or receive, pursuant to a legally enforceable right in existence at or before the measurement date for the corporate action), a financial benefit not generally available to other shareholders as such, other than:
  • (IA)employment, consulting, retirement, or similar benefits established by the corporation or its affiliates separately and not as part of or in contemplation of the corporate action;
  • (B)(II)employment, consulting, retirement, or similar benefits established in contemplation of, or as part of, the corporate action that are not more favorable than those existing before the corporate action or, if more favorable, that have been approved on behalf offrom the corporation in the same manner as is provided in section 8.62; oror its affiliates described in subsection (i)(A);
  • (C)(III)in the case of a director of the corporation who will, in the corporate action, become a director or governor of theany acquiror or any of itscontrolling affiliate of an acquiror (in each case other than the corporation and controlled affiliates of the corporation) in connection with a transaction described in section 13.02(a)(1)(i), (ii), or (v), rights and benefits as a director or governor that are provided by such acquiror or affiliate on the same basis as those afforded by thethat acquiror or affiliate generally to other directors or governors of such entity or suchthat acquiror or affiliate.; or
• (ii) “Beneficial owner” means any person who, directly or indirectly, through any contract, arrangement, or understanding, other than a revocable proxy, has or shares the power to vote, or to direct the voting of, shares; except that a member of a national securities exchange is not deemed to be a beneficial owner of securities held directly or indirectly by it on behalf of another person if the member is precluded by the rules of the exchange from voting without instruction on contested matters or matters that may affect substantially the rights or privileges of the holders of the securities to be voted. When two or more persons agree to act together for the purpose of voting their shares of the corporation, each member of the group formed thereby is deemed to have acquired beneficial ownership, as of the date of the agreement, of all shares having voting power of the corporation beneficially owned by any member of the group.
• (iii) “Excluded shares” means shares acquired pursuant to an offer for all shares having voting power if the offer was made within one year before the corporate action for consideration of the same kind and of a value equal to or less than that paid in connection with the corporate action.
  • (D) benefits attributable to ownership of a beneficial interest in shares or eligible interests of an acquiror or a controlling affiliate of an acquiror which were acquired separately and not as part of or in contemplation of the corporate action.
• (ii) Interested persons at any time during the one-year period immediately preceding the approval by the board of directors of the corporate action have, or pursuant to a legally enforceable right have the right to acquire, beneficial ownership of any voting power of any acquiror or of any controlling affiliate (other than the corporation) of any acquiror, unless all of such beneficial ownership, when aggregated, does not constitute more than 5% of the voting power of such acquiror or controlling affiliate.
• (iii) A majority of the board of directors of the corporation:
  • (A) at any time during the one-year period immediately preceding the approval by the board of directors of the corporate action:
    • (I) are or were directors, officers, or governors of any acquiror or any controlling affiliate of an acquiror (in each case other than the corporation and controlled affiliates of the corporation); or
    • (II) in the aggregate have, or pursuant to a legally enforceable right have the right to acquire, beneficial ownership of any voting power of any acquiror or of any controlling affiliate (other than the corporation) of any acquiror, unless all of such beneficial ownership, when aggregated, does not constitute more than 5% of the voting power of such acquiror or controlling affiliate; or
  • (B) as a result of or in connection with the corporate action, had obtained or received before the measurement date for the corporate action (or will obtain or receive, pursuant to a legally enforceable right that is in existence at or before the measurement date for the corporate action), a financial benefit not generally available to other shareholders as such, other than a benefit described in subsections (i)(A), (B), (C), or (D) of this definition of interested transaction, or have immediate family members, or controlled affiliates (other than the corporation) of them or their immediate family members, who had or will so obtain or receive such a financial benefit.
• (iv) An interested person (as defined in subsections (i) and (ii) of the definition of interested person) or an immediate family member of such an interested person is, at any time during the one-year period immediately preceding the approval by the board of directors of the corporate action, a director, senior executive, or governor of any acquiror or any controlling affiliate (other than the corporation or a controlled affiliate of the corporation) of an acquiror.
• (v) The directors and senior executives of the corporation beneficially own, in the aggregate with their affiliates, at any time during the one-year period immediately preceding the approval by the board of directors of the corporate action, a majority of the voting power of any acquiror or any controlling affiliate (other than the corporation) of an acquiror.

“Measurement date” for a corporate action means the later of (i) the date the board of directors approves the corporate action and (ii) the date on which the agreement, if any, establishing the terms of the corporate action has been executed.

“Preferred shares” means a class or series of shares whose holders have preference over any other class or series of shares with respect to distributions.

“Senior executive” of an entity means the chief executive officer, chief operating officer, chief financial officer, and any individual in charge of a principal business unit or function, or any other individual that performs such functions for the entity.

“Shareholder” means a record shareholder, a beneficial shareholder, andor a voting trust beneficial owner, as applicable.

“Voting power” means the power to vote in the election of directors or governors of an entity; the power to select, remove, or appoint directors or governors of an entity (other than the statutory authorization of corporate directors to fill vacancies on the board); or the power to vote on the corporate action for which the right to an appraisal is being determined.

For purposes of the definitions in this section:

• (i) any determination or calculation of voting power shall include, for all shares, eligible interests or other securities that are outstanding at the relevant time for calculation and at that time or within one year thereafter are convertible, exchangeable or exercisable for securities having voting power, the greater of (A) their voting power at the date of determination, or (B) their voting power on an “as exercised,” “as exchanged” or “as converted” basis;
• (ii) when two or more persons agree to act together (other than solely by reason of a revocable proxy appointment) for the purpose of exercising or directing the exercise of voting power or for the purpose of effecting a transaction described in section 13.02(a)(1) or (2), each member of the group formed thereby is deemed, as of the date of the agreement, to have acquired beneficial ownership of all voting power beneficially owned by any member of the group;
• (iii) an individual shall be deemed to beneficially own voting power beneficially owned by such individual’s immediate family members living in the same home as such individual;
• (iv) a person shall be deemed to beneficially own voting power beneficially owned by such person’s controlled affiliates; and
• (v) any calculation of voting power in an acquiror or an affiliate of an acquiror shall exclude voting power of that acquiror or affiliate beneficially owned by the corporation or controlled affiliates of the corporation.

CROSS-REFERENCES

• Directors’ action on director’s conflicting interest transaction“Beneficial shareholder” defined, see § 8.62 1.40.
• "Converted entity” defined, see § 9.01.
• "Domesticated corporation” defined, see § 9.01.
• “Entity” defined, see § 1.40.
• “Governor” defined, see § 1.40.
• “Voting powerPerson” defined, see § 1.40.
• “Record shareholder” defined, see § 1.40.
• “Voting trust beneficial owner” defined, see § 1.40.
• Voting trusts, see § 7.30.

OFFICIAL COMMENT

1. OverviewDefinitions

Chapter 13 proceeds from the premise that judicial appraisal should be provided by statute only when two conditions co-exist. First, a proposed corporate action as approved by a majority will result in a fundamental change in the shares to be affected by the action. Second, uncertainty concerning the fair value of the affected shares may cause reasonable persons to differ about the fairness of the terms of the corporate action. Uncertainty is reduced, however, in the case of publicly traded shares. This explains both the market exception described below and the limits provided to that exception.

When these two conditions exist in connection with domestications and conversions under chapter 9, mergers and share exchanges under chapter 11, and dispositions of assets requiring shareholder approval under chapter 12, chapter 13 provides for appraisal rights. Each of these actions will result in a fundamental change in the shares that a disapproving shareholder may believe was not adequately compensated by the terms approved by the majority. Shareholders are not entitled to appraisal, however, if the change will not alter the terms of the class or series of securities that they hold. For example, statutory appraisal rights are not available for shares of any class or series of the surviving corporation in a merger that are not being changed in the merger or for shares of any class or series that is not included in a share exchange. Appraisal is also not triggered by a voluntary dissolution under chapter 14 because the dissolution does not affect liquidation rights of the shares of any class or series.

With the exception of reverse stock splits that result in cashing out some of the shares of a class or series, chapter 13 does not grant appraisal rights in connection with amendments to the articles of incorporation. This does not reflect a judgment that an amendment changing the terms of a particular class or series may not have significant economic effects. Rather, it reflects a judgment that distinguishing among different types of amendments for the purposes of statutory appraisal is necessarily arbitrary. Chapter 13 delineates in section 13.02(a)(5) a list of actions for which the corporation may voluntarily choose to provide appraisal. It also allows, under section 13.02(c), a provision in the articles of incorporation that eliminates, in whole or in part, statutory appraisal rights for preferred shares, subject to certain conditions.

Chapter 13 provides an exception to appraisal rights for publicly traded shares, referred to as the “market exception.” This exception is available in those situations when shareholders are likely to receive fair value if they sell their shares in the market after the announcement of an appraisal-triggering transaction. For the market exception to apply under chapter 13, there must be a liquid market for the shares. The market exception does not apply where the appraisal-triggering action is a conflict transaction.

2. Definitions

Section 13.01 contains specialized definitions applicable only to chapter 13, and in some cases, only to specified portions of chapter 13.

A. CorporationACQUIROR

“Acquiror” is generally the party to a corporate action that triggers appraisal rights (other than the corporation), such as the entity that merges with the corporation in a merger (whether the corporation or the other entity is the survivor) or is the acquiring party in a share exchange or disposition of assets. Although the parent entity in a triangular merger may provide its securities as merger consideration, it is not an “acquiror” because it does not actually merge with the corporation. Similarly, if a subsidiary is the acquiring entity in a share exchange, its parent is not an “acquiror.” However, several definitions in section 13.01, such as the definition of “interested transaction,” for example, deal with both acquirors and their controlling affiliates. In domestications and conversions, where there is no “other party” to the corporate action, the “acquiror” is the domesticated corporation or the converted entity. The corporation itself is always excluded from the definition of acquiror to avoid circularity.

B. BENEFICIAL OWNER AND BENEFICIAL SHAREHOLDER

The definition of “beneficial owner” applies only to certain definitions in section 13.01. It is used in identifying possible conflict situations. In contrast, the term “beneficial shareholder,” as defined in section 1.40, is used to identify certain persons entitled to appraisal rights.

C. CORPORATION

The definition of “corporation” in section 13.01 includes, forFor purposes of the post-transaction matters covered in sections 13.22 through 13.31, the definition of “corporation” in section 13.01 includes a successor entity in a merger where the corporation is not the surviving entity. The definition does not include an acquiring entity in a share exchange or disposition of assets because the corporation whose shares or assets were acquired continues in existence in both of these instancestransactions and remains responsible for the appraisal obligations. Whether a foreign corporation or other form of domestic or foreign entity is subject to appraisal rights in connection with any of these transactions depends upon the applicable law of the relevant jurisdiction. Similarly, sections 9.24 and 9.35 provide that a domesticated corporation and a converted entity, respectively, are the same entity as the corporation without interruption, so no specific reference to domesticated corporations or converted entities is necessary in the definition of corporation to ensure that an entity remains responsible for appraisal obligations.

D. EXCLUDED SHARES

When an acquisition involves two steps (a tender offer followed by either a merger or a share exchange) in a transaction meeting the specified requirements of section 11.04( j), the two-step acquisition is effectively a single transaction for purposes of identifying conflict transactions. Therefore, the shares acquired in the tender offer (the “excluded shares”) are not included in calculating whether a person is an “interested person” for purposes of the second-step merger or share exchange because the entire transaction was agreed to before the shares were acquired. Excluded shares are only excluded from calculations when the corporate action is the second step of a section 11.04( j) transaction.

BE. FAIR VALUE

A determination of “fair value” of a share in appraisal under chapter 13 ordinarily begins with a determination of the value of the corporation, followed by a determination of what portion of that value is attributable to the interest in the corporation represented by the share. The latter determination will depend on the terms of the shares being appraised, including their preferences, rights, and limitations. For example, the fair value of a share of preferred stock that is redeemable at any time for a stated amount would likely be limited to that amount. If the corporation has only a single class of common stock, however, each share would typically be entitled to its pro rata portion of the value of the corporation.

ClauseSubsection (i) of the definition of “fair value” in section 13.01 specifies that fair value is to be determined immediately before the effectiveness of the corporate action, which will be after the. This may be long after the terms of the corporate action are agreed upon and any required shareholder vote has occurred. Accordingly, section 13.01 permits consideration of any changes in the value of the corporation’s sharescorporation after the shareholder votethose events but before the effectiveness of the transaction, to the extent such changes are relevant. Similarly, in a two-step transaction culminating in a merger, fair value iscorporate action. For example, changes in the corporation’s operations and regulatory and competitive environment occurring between the vote on and closing of a merger for which appraisal rights are available could be considered in the determination of the value of the corporation immediately before the effectiveness of the corporate action. By providing that fair value shall be determined immediately before the second step merger, taking into account any interim changes in value. effectiveness of the corporate action rather than stating, as the corporation statutes of some states do, that value from the accomplishment or expectation of the corporate action shall be excluded, the Act gives broad discretion to the court to decide how to treat those possible elements of value. Thus, the court may consider possible future events and actions related to the corporation that normally are considered under customary and current valuation concepts and techniques or that the court deems appropriate.

Clause (ii) of the definition of “fair value” in section 13.01 adopts the view that different transactions and different contexts may warrant different valuation methodologies. Customary valuation concepts and techniques will typically take into account numerous relevant factors, and will normally result in a range of values, not a particular single value. A court determining fair value under chapter 13 should give great deference to the aggregate consideration accepted or approved by a disinterested board of directors for an appraisal-triggering transaction.

Under subsection (ii), the court, for example, might consider the price at which the corporation might be sold; the trading price, if any, of the corporation’s shares; the value or sales price of comparable companies, including any premiums in excess of the market price of their shares; the results of discounted cash flow analyses or other financial valuation analyses; and the price agreed to in the corporate action giving rise to appraisal rights and the process through which that price was determined.

ValuationThe exclusion under subsection (iii) of discounts for lack of marketability or minority status are inappropriate in most appraisal actions, both because most transactions that trigger appraisal rights affect the corporation as a whole and because such discounts may give the majority the opportunity to take advantage of minority shareholders who have been forced against their will to accept the appraisal-triggering transaction. Clause (iii) of theof shares in determining fair value supports the definition of “fair value” adopts the view that appraisal should generally award a shareholder his or her proportionalas reflecting the interest in the corporation after valuing the corporation as a whole, rather than the value of therepresented by the shares being valued. Neither an illiquid trading market nor ownership of only a small number of shares would be expected to affect the value of the corporation or the portion of that value attributable to the interest in the corporation represented by the shareholder’s shares when valued alone.

CF. INTEREST

The specification of the rate of interest on judgments, rather than a more subjective rate, eliminates a possible issue of contention and should facilitate voluntary settlements. Other state law determines whether interest is compound or simple.

G. INTERESTED PERSON

For a corporate action to fall within subsection (i), (ii), or (iv) of the definition of “interested transaction,” it must involve an “interested person.” The definition of interested person is intended to capture persons able to exert influence on the ultimate approvals of a corporate action that might trigger appraisal. Senior executives and directors can influence the shaping of a transaction, but subsection (iii) of the definition recognizes that troublesome conflicts most typically arise when those individuals also have voting power allowing them to exert meaningful influence over the approval of the transaction by the shareholders. Accordingly, subsection (iii) includes only senior officers or directors who own shares and only if they beneficially own, in the aggregate, more than 5% of the voting power of the corporation.

H. INTERESTED TRANSACTION

The definition of “interested transaction” identifies transactions in which a potential conflict of interest could affect the valuation achieved in the transaction. In these cases, appraisal provides a potential remedy without the need to demonstrate a breach of duty.

Subsections (i), (ii), and (iv) cover situations in which an “interested person” has a conflict with respect to the transaction. The type of financial benefit covered by subsection (i) need not be received in or specified in the terms of the transaction itself but may be received as a result of or in connection with the transaction. Examples might include receipt of consideration greater than that to which other shareholders are entitled, a special bonus paid for signing or completing the transaction, or the right or option to invest in the acquiror. Because the financial benefit to the interested person must be pursuant to a right that is legally enforceable at or before the “measurement date” for the corporate action, an expectation, hope, or non-binding suggestion of preferential treatment is insufficient. Similarly, an agreement for such a financial benefit reached only after the defined measurement date would not trigger appraisal. The exception to the financial benefits test in subsection (i)(C) does not apply to domestications and conversions described because there the resulting entity (the acquiror) is the same entity as the corporation. The exceptions in subsections (i)(A) and (B) might apply to those transactions, however. Subsection (i)(D) excepts benefits attributable to certain interests in shares or eligible interests in an acquiror or in a controlling affiliate of an acquiror because ownership of such an interest is independently dealt with in subsections (ii) and (iii)(A)(II) of the definition of interested transaction.

I. MEASUREMENT DATE

The “measurement date” is the time when matters in subsections (i) and (iii)(B) of the definition of interested transaction are tested to determine whether a specified person has a legally enforceable right to receive a financial benefit not available to other shareholders as such.

Dj. Interested TransactionSHAREHOLDER

The terms “record shareholder,” “beneficial shareholder,” and “voting trust beneficial owner” are defined in section 1.40. “Beneficial shareholder” is used in chapter 13 to identify certain shareholders entitled to assert appraisal rights. The term “beneficial owner,” which is not defined in section 1.40, is generally used to identify persons who have beneficial ownership of voting power in the corporation or an acquiror for measuring potential conflict situations.

The term “interested transaction” addresses two groups of conflict transactions: those in subsections (i)(A) and (B) of the definition, which involve large shareholders; and those in subsection (i)(C), which involve senior executives and directors. The phrase “involving an interested person” as applied to subsections (i)(A) and (B) denotes participation beyond merely voting or participating on the same basis as other holders of securities of the same or a similar class or series. When a transaction fits within the definition of an interested transaction there are two consequences: the market exception will not be applicable, and the exclusion of other remedies under section 13.40 will not be applicable unless certain disinterested approvals have been obtained.

The definition of “beneficial owner” in subsection (ii) of the definition of “interested transaction” is used to identify possible conflict situations by deeming each member of a group that agrees to vote in concert to be a beneficial owner of all the voting shares owned by the members of the group. (In contrast, the term “beneficial shareholder,” as defined in section 1.40, is used to identify those persons entitled to appraisal rights.) When an acquisition is effected in two steps (a tender offer followed by a merger) within one year, and the consideration in the merger is of the same kind and of at least the same value as that in the tender offer, the two-step acquisition is properly considered a single transaction for purposes of identifying conflict transactions, regardless of whether the second-step merger is governed by section 11.04 or 11.05. Therefore the shares acquired in such an offer (defined as “excluded shares” in subsection (iii)) are excluded in subsections (i)(A) and (B) from the determination of whether a person is an “interested person” for purposes of the second-step merger.

A reverse split in which small shareholders are cashed out will constitute an interested transaction if there is an affiliate of the corporation who satisfies the test in subsections (i)(A) or (B). In that case, the corporation itself will be considered an affiliate of the large shareholder and fall within the definition of “interested person,” such that when the corporation acquires and cashes out the shares of the small shareholders the acquisition will be an interested transaction.

Subsection (i)(C) applies to management buyouts because management’s participation in the buyout group is itself “a financial benefit not generally available to other shareholders.” It also applies to transactions involving other types of economic benefits (excluding benefits afforded to shareholders generally) afforded to senior executives (as defined in section 13.01) and directors in specified conflict situations, unless specific objective or procedural standards are met. It would also apply to less common situations, such as where the vote of a director is manipulated by providing the director with special consideration to secure his or her vote in favor of the transaction. Section 13.01 specifically defines the term “affiliate” to include an entity of which a person is a senior executive. As a result of this definition, if a senior executive of the corporation is to continue and is to receive enumerated employment and other financial benefits after the transaction, exempting the transaction from the category of “interested transactions” will depend on meeting one of the three conditions specified in subsection (i)(C), for example:

• • If an individual has an arrangement under which benefits will be triggered on a “change of control,” such as accelerated vesting of options, retirement benefits, deferred compensation and similar items, or is afforded the opportunity to retire or leave the employ of the enterprise with more favorable economic results than would be the case absent a change of control, the existence of these arrangements would not mean that the transaction is an interested transaction if the arrangements had been established as a general condition of the individual’s employment or continued employment, rather than in contemplation of the particular transaction.
• • If such arrangements are established as part of, or as a condition of, the transaction, the transaction will still not be considered an interested transaction if the arrangements are either not more favorable to the officer or director than those already in existence or, if they treat the director or officer more favorably, are approved by “qualified” directors (i.e., meeting the standard specified in section 1.43), in the same manner as provided for conflicting interest transactions generally with the corporation under section 8.62. This category would include arrangements with the corporation that have been negotiated as part of, or as a condition to, the transaction or arrangements with the acquiring company or one or more of its other subsidiaries.
• • If a person who is a director of the corporation and, in connection with the transaction, is to become a director of the acquiror or its parent, or to continue as a director of the corporation when it becomes a subsidiary of the acquiror, the transaction will not be considered an interested transaction as long as that person will not be treated more favorably as a director than are other persons who are serving in the same director positions.

Ek. Senior ExecutiveVOTING POWER

The definition of “senior executivevoting power” reflects that the definition of “interested transactions” in section 13.01 encompasses the group of individuals in control of corporate information and the corporation’s day-to-day operations. An employee of a subsidiary organization is a “senior executive” of the parent if the employee is “in charge of a principal business unit or function” of the parent and its subsidiaries on a combined or consolidated basis.addresses both general influence over the corporation and the ability to influence the ultimate approval of a corporate action.

F2. SHAREHOLDERCalculation Rules

The final paragraph of section 13.01 sets out rules for calculating voting power or beneficial ownership. The attribution of beneficial ownership in subsection (iii) is limited to immediate family members that share the individual’s home, because that should be ascertainable. Discovering beneficial ownership by all individuals, wherever located, included in the relatively broad definition of “immediate family member” may not be practicable or possible.

Any calculation of voting power of the corporation will be subject to section 7.21(b), which generally prohibits voting of shares of a corporation that are owned or controlled by that corporation.

The definition of “shareholder” in section 13.01 encompasses beneficial shareholders and voting trust beneficial owners. This recognizes that these persons have or hold on behalf of others an economic interest in the shares. Use of the term “beneficial shareholder” for this purpose is to be contrasted with the use of the term “beneficial owner” in subsection (ii) of the definition of “interested transaction” to identify possible conflict situations. The distinction between “record shareholder” and “beneficial shareholder” appears primarily in section 13.03, which establishes the manner in which beneficial shareholders, and record shareholders who are acting on behalf of beneficial shareholders, perfect appraisal rights.

§ 13.02. RIGHT TO APPRAISAL

• (a) A shareholder is entitled to appraisal rights, and to obtain payment of the fair value of that shareholder’s shares, in the event of any of the following corporate actions:
  • (1) any of the following that is an interested transaction:
    • (1i) consummation of a merger to which the corporation is a party (i) if shareholderas defined in section 11.01) if approval by shareholders of the corporation is required for the merger by section 11.04, or would be required but for the provisions of section 11.04( j), except that appraisal rights shall not be available to any shareholder of the corporation with respect to shares of any class or series that remain outstanding after consummation of the merger, or (ii) if the corporation is a subsidiary and the merger is governed by section 11.05;
    • (2ii) consummation of a share exchange to which the corporation is a party the shares of which will be acquired, except that appraisal rights shall not be available to any shareholder of the corporation with respect to any class or series of shares of the corporation that is not acquired in the share exchange;
  • (3) consummation of a disposition of assets pursuant to section 12.02 if the shareholder is entitled to vote on the disposition, except that appraisal rights shall not be available to any shareholder of the corporation with respect to shares of any class or series if (i) under the terms of the corporate action approved by the shareholders there is to be distributed to shareholders in cash the corporation’s net assets, in excess of a reasonable amount reserved to meet claims of the type described in sections 14.06 and 14.07, (A) within one year after the shareholders’ approval of the action and (B) in accordance with their respective interests determined at the time of distribution, and (ii) the disposition of assets is not an interested transaction;
    • (iii) consummation of a domestication of the corporation pursuant to section 9.20;
    • (iv) consummation of a conversion of the corporation pursuant to section 9.30; or
    • (v) consummation of a disposition of assets requiring approval of the corporation’s shareholders pursuant to section 12.02;
  • (2) when there is an interested person, effectiveness of an amendment of the articles of incorporation with respect to a class or series of shares that reduces the number of shares of a class or series owned by the shareholder to a fraction of a share if the corporation has the obligation or right to repurchase the fractional share so created, except that appraisal rights shall not be available to any shareholder of the corporation with respect to any class or series of shares of the corporation with respect to which the shareholder is not so affected;
  • (5) any other merger, share exchange, disposition of assets or amendment to the articles of incorporation, in each case to the extent provided by the articles of incorporation, bylaws or a resolution of the board of directors;
  • (63) consummation of a domestication pursuant to section 9.20 if the shareholder does not receive shares in the foreign corporation resulting from the domestication that have terms as favorable to the shareholder in all material respects, and represent at least the same percentage interest of the total voting rights of the outstandingmerger to which the corporation is a party if the merger is governed by section 11.05 and the corporation is the subsidiary, except that appraisal rights shall not be available with respect to any shares of the foreign corporation, as the shares held by the shareholder before the domestication owned by the parent entity;
  • (4) unless the corporate action is already covered by sections 13.02(a)(1), (2), or (3), or unless the exception in section 13.02(b) applies, any of the following corporate actions as a result of which the shares of the shareholder become, or are converted into or exchanged for the right to receive, eligible interests, but the shareholder shall only be entitled to appraisal rights with respect to the shares of the corporation which become, or are converted into or exchanged for the right to receive, such eligible interests:
    • (i) consummation of a merger;
    • (ii) consummation of a share exchange;
    • (iii) consummation of a domestication of the corporation pursuant to section 9.20;
    • (7iv) consummation of a conversion of the corporation to a nonprofit corporation pursuant to section 9.30; or
    • (8v) consummation of a conversion of the corporation to an unincorporated entity pursuant to section 9.30.effectiveness of an amendment of the articles of incorporation;
  • (5) unless the corporate action is already covered by section 13.02(a)(1)(v), or unless the exception in section 13.02(b) applies, consummation of a disposition of assets pursuant to section 12.02 in which the consideration to be received by the corporation includes eligible interests, unless the terms of the corporate action approved by the shareholders provide that such eligible interests shall not be distributed to shareholders of the corporation for at least one year after the consummation of such disposition of assets; or
  • (6) any other merger, share exchange, domestication, conversion, disposition of assets or amendment to the articles of incorporation, in each case to the extent provided by the articles of incorporation, bylaws, or a resolution of the board of directors.
• (b) Notwithstanding subsection (a), the availability of appraisal rights under subsections (a)(1), (2), (3), (4), (6) and (8) shall be limited in accordance with the following provisions:
  • (1) Appraisal rights shall not be available under subsections (a)(4) or (5) for the holders of shares of any class or series of shares which is:
    • (i) a covered security under section 18(b)(1)(A) or (B) oflisted for trading on a national securities exchange registered under the Securities Exchange Act of 19331934;
    • (ii) traded in an organized market and has at least 2,000 shareholders and a market value of at least $20 million (exclusive of the value of such shares held by the corporation’s subsidiaries, senior executives and directors and by any beneficial shareholder and any voting trust beneficial owner owning more than 10% of such shares); or
    • (iii) issued by an open endopen-end management investment company registered with the United States Securities and Exchange Commission under the Investment Company Act of 1940 and which may be redeemed at the option of the holder at net asset value.
  • (2) The applicability of subsection (b)(1) shall be determined as of:
    • (i) the record date fixed to determine the shareholders entitled to receive notice of the meeting of shareholders to act upon the corporate action requiring appraisal rights or, in the case of an offer made pursuant to section 11.04( j), the date of such offer; or
    • (ii) if there is no meeting of shareholders and no offer made pursuant to section 11.04( j), the day before the consummation of the corporate action or the day before the effective date of the amendment of the articles of incorporation, as applicable.
  • (3) Subsection (b)(1) shall not be applicable and appraisal rights shall be available pursuant to subsection (a) for the holders of any class or series of shares (i) who are required byunder the terms of the corporate action requiring appraisal rights to accept for such shares anything other than cash or shares of any class or any series of shares of any corporation, or any other proprietary interest of any other entity, that satisfies the standards set forth in subsection (b)(1) at the time the corporate action becomes effective,; or (ii) in the case of the consummation of a disposition of assets pursuant to section 12.02 described in section 13.02(a)(5), unless the cash, shares, or proprietary interests received by the corporation in the disposition are, under the terms ofsatisfy the standards set forth in subsection (b)(1) at the time the corporate action approved by the shareholders, to be distributed to the shareholders, as part of a distribution to shareholders of the net assets of the corporation in excess of a reasonable amount to meet claims of the type described in sections 14.06 and 14.07, (A) within one year after the shareholders’ approval of the action, and (B) in accordance with their respective interests determined at the time of the distribution.becomes effective.
  • (4) Subsection (b)(1) shall not be applicable and appraisal rights shall be available pursuant to subsection (a) for the holders of any class or series of shares where the corporate action is an interested transaction.
• (c) Notwithstanding any other provision of section 13.02, the articles of incorporation as originally filed or any amendment toa provision in the articles of incorporation may limit or eliminate appraisal rights for any class or series of preferred shares, except that (i) no such limitation or elimination shall be effective if with respect to corporate actions on which the class or series does not havehas the right to vote separately as a voting group (alone or as part of a group)separate voting group on the action or if the action is a conversion under section 9.30, or a merger having a similar effect as a conversion in which the converted entity is an eligible entity, and (ii) any such limitation or elimination contained in an amendment to the articles of incorporation that limits or eliminates appraisal rights for any of such shares that are outstanding immediately before the effective date of such amendment or that the corporation is or may be required to issue or sell thereafter pursuant to any conversion, exchange or other right existing immediately before the effective date of such amendment shall not apply to any corporate action that becomes effective within one year after the effective date of such amendment if such action would otherwise afford appraisal rights.if (i) shares of the class or series of preferred shares so affected were first issued after the effective date of such provision of the articles of incorporation, (ii) such provision of the articles of incorporation was approved by the separate vote of the class or series of preferred shares so affected, or (iii) such provision was included in the articles of incorporation prior to [insert date this section was adopted] and was permitted at the time it was so included.

CROSS-REFERENCES

• Amendment of articles of incorporation, see ch. 10A.
• “Beneficial shareholder” and “voting trust beneficial owner” defined, see § 1.40.
• Classes and series of shares, see §§ 6.01 and 6.02.
• Conversion, see ch. 9C.
• Disposition of assets, see ch. 12.
• Domestication, see ch. 9B.
• Effective time and date of conversion, domestication, merger, share exchange, or amendment to articles of incorporation, see § 1.23.
• “Eligible entityinterest” defined, see § 1.40.
• “Foreign corporationEntity” defined, see § 1.40.
• “Interested person” defined, see § 13.01.
• “Interested transaction” defined, see § 13.01.
• Merger and share exchange, see ch. 11.
• Merger of subsidiary, see § 11.05.
• “Nonprofit corporation” defined, see § 1.40.
• “Person” defined, see § 1.40.
• “Preferred shares” defined, see § 13.01.
• Record date, see § 7.07.
• Redemption of shares, see §§ 6.01 and 6.31.
• Share dividends, see § 6.23.
• Share preferences, see §§ 6.01 and 6.02.
• “Unincorporated entityShareholder” defined, see § 1.40 13.01.
• Voting by voting groups, see §§ 1.40, 7.25 and 7.26.
• “Voting power” defined, see § 1.40 13.01.
• Voting rights, see § 7.21.

OFFICIAL COMMENT

1. Transactions Requiring Appraisal Rights

Section 13.02(a) establishes the scope of appraisal rights by identifying those transactions that afford this right. Statutory appraisal is made available only for corporate actions that will result in a fundamental change in the shares to be affected by the action and then only when uncertainty concerning the fair value of the affected shares may cause reasonable differences about the fairness of the terms of the corporate action. The transactions that satisfy both of these criteria are set forth in section 13.02(a), subject to the exceptions set forth in section 13.02(b). In a two-step transaction authorized by section 11.04( j), shareholders at the time of the second step merger could have appraisal rights even though there is no shareholder vote. Shareholders who tender in response to the offer in the first step of such a transaction would not have appraisal rights; their tendering in response to the offer has the same effect on appraisal rights as if they had voted for the transaction.

Under sectionSections 13.02(ba)(1), the reasons for granting(2), and (3) provide appraisal rights in a reverse stock split in which shares are cashed out are similar to those for granting such rights in cases of cash-out mergers, as both transactions could compel affected shareholders to accept cash for their investment in an amount established by the corporation. Appraisal is afforded only for those shareholders of a class or series whose interest is so affected by the amendment. As provided in section 12.02(g), a disposition of assets by a corporation in the course of dissolution under chapter 14 is governed by that chapter, not chapter 12, and thus does not implicatesituations where there may be a conflict of interest that calls into question the valuation achieved in the transaction. Sections 13.02(a)(4) and (5) provide appraisal rights in corporate actions where the equity consideration to be received involves ownership in a different type of entity, such as a partnership or a nonprofit corporation.

An express grant of voluntary appraisal rights under section 13.02(a)(5) overrides any of the exceptions to the availability of appraisal rights in section 13.02(a). Any voluntary grant of appraisal rights by the corporation to the holders of one or more of its classes or series of shares in connection with a corporate action will automatically make all of the provisions of chapter 13 applicable to the corporation and such holders regarding that corporate action.

Section 13.02(a)(6) allows the corporation to grant statutory appraisal rights under chapter 13 to other types of mergers, share exchanges, domestications, conversions, dispositions of assets, or amendments to the articles of incorporation. Because the corporation may provide the extent to which appraisal is available under section 13.02(a)(6), it could grant the new appraisal rights subject to the market exception or other conditions. Although the corporation may specify the extent to which such statutory appraisal rights are provided, this section does not authorize it to change the terms or procedures of the statutory appraisal. If a corporation desires to provide through private ordering a process similar to appraisal but with different terms or procedures, it may do so, but that process will not be a statutory appraisal under chapter 13, and in it the corporation is not authorized to impose a duty on the courts to take the actions or make the determinations provided in chapter 13.

2. Market Exception to Appraisal Rights

Chapter 13 provides a limited exception to appraisal rights for those situationscorporate actions in sections 13.02(a)(4) and (5) where shareholders may either accept the appraisal-triggering corporate action or sell their shares in an organized market described in section 13.02(b)(1). For purposes of this chapter, the The organized market provides the dissenting shareholder the ability to exit the investment. The market exception is provided for a class or series of shares if two tests are satisfied: the market in which the shares are traded must be liquid, as described in section 13.02(b)(1), and the value of the shares established by the appraisal-triggering event must be the result of a process reasonably calculated to arrive at a price reflective of an arm’s length transaction. does not apply to appraisal triggered by interested transactions under subsection (a)(1), cash-out reverse splits under subsection (a)(2), or short-form mergers under subsection (a)(3), which provide appraisal because of valuation concerns for which a sale in the market may not necessarily provide fair value.

Because sectionSection 13.02(b)(3)(i) generally excludes from the market exception those transactions that require shareholders to accept anything other than cash or securities that also meet the liquidity tests of section 13.02(b)(1). Accordingly, shareholders in transactions described in sections 13.02(a)(4) and (5) are assured of receiving either appraisal rights, cash from the transaction, or shares or other proprietary interests in the survivor entity that are liquid. Section 13.02(b)(2) specifies the date on which the corporation must satisfy the requirements of section 13.02(b)(1) for the market exception to be applicable. Section 13.02(b)(4) recognizes that the market price of, or consideration for, shares of a corporation that proposes to engage in an interested transaction of the type listed in section 13.02(a) may be subject to influences where a corporation’s management, controlling shareholders or directors have conflicting interests that could, if not dealt with appropriately, adversely affect the consideration that otherwise could have been expected. Section 13.02(b)(4) thus provides that the market exception will not apply in those instances where the transaction constitutes an interested transaction (as defined in section 13.01).

3. Limitation or Elimination of Appraisal Rights for Preferred Shares

Section 13.02(c) permits the corporation to eliminate or limitauthorizes the corporation’s articles of incorporation in some cases to limit or eliminate appraisal rights that would otherwise be available for the holders of one or more series or classes of preferred shares provided that the standards in that section are met. Chapter 13 does not permit the corporation to eliminate or limit the appraisal rights ofpreferred but not common shares.

§ 13.03. ASSERTION OF RIGHTS BY NOMINEES AND BENEFICIAL SHAREHOLDERS SHARES FOR WHICH APPRAISAL MAY BE ASSERTED

• (a) A record shareholder may assert appraisal rights as to fewer than all the shares registered in the record shareholder’s name but owned by a beneficial shareholder or a voting trust beneficial owner only if the record shareholder objects with respect to all shares of a class or series owned by the beneficial shareholder or the voting trust beneficial owner and notifies the corporation in writing of the name and address of each beneficial shareholder or voting trust beneficial owner on whose behalf appraisal rights are being asserted. The rights of a record shareholder who asserts appraisal rights for only part of the shares held of record in the record shareholder’s name under this subsection shall be determined as if the shares as to which the record shareholder objects and the record shareholder’s other shares were registered in the names of different record shareholders.

Appraisal rights may only be asserted with respect to shares that are owned by the beneficial shareholders or voting trust beneficial owners as of the effective time of the corporate action entitling shareholders to appraisal rights and that are properly included in the form for asserting appraisal under section 13.23. If shares for which appraisal rights are asserted remain outstanding after the effective time of the corporate action, the shareholder asserting those rights must continue to own those shares until certificates for those shares or satisfactory evidence of transfer of those shares to the corporation is received by the corporation as required by the appraisal notice and form provided for in section 13.22(b). In addition, if a notice of intent of a shareholder to assert appraisal rights is required under section 13.21, (i) appraisal rights may only be asserted with respect to shares which the beneficial shareholder or voting trust beneficial owner owned as of the date the notice of intent was given and continued to own through the effective time of the corporate action, (ii) the notice of intent may only include shares owned by that shareholder as of the date the notice of intent was given, and (iii) the number of those shares for which appraisal rights may be asserted is limited to the number properly included in the notice of intent.

CROSS-REFERENCES

• “Beneficial shareholder” and “voting trust beneficial owner” defined, see § 1.40.
• Effective time and date of conversion, domestication, merger, share exchange, or amendment to articles of incorporation, see § 1.23.
• “Shareholder” defined, see § 13.01.

OFFICIAL COMMENT

Section 13.03 describes the shares for which appraisal may be asserted.

§ 13.04. CONSEQUENCES OF VOTING, CONSENTING, OR TENDERING

• (a) If appraisal rights are to be asserted by or on behalf of a beneficial shareholder, the beneficial shareholder shall not be entitled to assert appraisal rights or to receive payment under this chapter with respect to shares of a class or series if the beneficial shareholder voted in favor of, or consented in writing to, or tendered in an offer under section 11.04( j) that is part of, the corporate action with respect to which appraisal rights are to be asserted, or caused or permitted to be so voted, consented, or tendered, any shares of which it was the beneficial shareholder of the same class or series.
• (b) A beneficial shareholder and aIf appraisal rights are to be asserted with respect to shares in a voting trust, the voting trust beneficial owner mayshall not be entitled to assert appraisal rights asor to receive payment under this chapter with respect to shares of anya class or series held on behalf of the shareholder only if such shareholder:in that voting trust if any of the shares of that voting trust beneficial owner of the same class or series in that voting trust were voted in favor of, or consented in writing to, or tendered in an offer under section 11.04( j) that is part of, the corporate action with respect to which appraisal rights are to be asserted.
  • (1) submits to the corporation the record shareholder’s written consent to the assertion of such rights no later than the date referred to in section 13.22(b)(2)(ii); and
  • (2) does so with respect to all shares of the class or series that are beneficially owned by the beneficial shareholder or the voting trust beneficial owner.

CROSS-REFERENCES

• Availability of appraisal rights, see § 13.02.
• “Beneficial shareholder,” “record shareholder” and “voting trust beneficial owner” defined, see §§ 1.40 and 13.01.
• Notice to the corporation, see § 1.41.
• “Person” defined, see § 1.40.
• “Shareholder” defined, see §§ 1.40 and 13.01.
• Shares held by nominee, see § 7.23.
• Voting agreements, see § 7.31.
• Voting trusts, see § 7.30.

OFFICIAL COMMENT

Section 13.03 addresses the relationship between those who are entitled to assert appraisal rights and the widespread practice of nominee or street name ownership of publicly traded shares. Generally, a shareholder must demand appraisal for all the shares of a class or series which the shareholder owns. If a record shareholder is a nominee for several beneficial shareholders, some of whom wish to demand appraisal and some of whom do not, section 13.03(a) permits the record shareholder to assert appraisal rights with respect to a portion of the shares held of record by the record shareholder but only with respect to all the shares beneficially owned by a single person. The same rule applies to shares held by voting trustees. A shareholder who owns shares in more than one class or series, however, may assert appraisal rights for only some rather than all classes or series that the shareholder owns.

The concept underlying section 13.04(a) is that a shareholder should not be able to use its voting power to aid in the approval of a transaction but then seek appraisal claiming that the transaction consideration is unfair.

Although in many situations the record shareholder may also be the beneficial shareholder, section 13.04(a) focuses on the beneficial shareholder for two reasons. First, the beneficial shareholder is almost always in control over these actions with respect to its shares. Second, a record shareholder may hold shares for beneficial shareholders with differing opinions about the transaction in question. The record shareholder’s vote of shares of one beneficial shareholder should not bar other beneficial shareholders for whom it holds shares from seeking appraisal.

If shares are voted, consented, or tendered without the beneficial shareholder having the right to control the action, the bar on asserting appraisal rights will not apply. For example, if a share is purchased after the record date and the record date holder has independently submitted a proxy voting in favor of the corporate action, the purchaser will not have taken any action with respect to voting and therefore will not be deemed to have caused or permitted the share to be voted affirmatively. Shares of different classes or series have different characteristics and may be treated differently in the corporate action, so voting a share of one class or series in favor of a transaction does not bar appraisal with respect to shares of a different class or series.

Voting trustees hold shares on behalf of Section 13.04(b) deals with voting trust beneficial owners and may want to or be required to pass the decision on asserting appraisal rights on to. A voting trust beneficial owner usually will not be able to control the voting, consenting, or tendering of its shares in the voting trust. Therefore, the focus in section 13.04(b) is only on whether any of the owner’s shares in that particular voting trust were so voted, consented, or tendered, rather than on the actions of the voting trust beneficial owners. To make appraisal rights effective without burdening record shareholders, beneficial shareholders and voting trust beneficial owners are allowed to assert their own claims as provided in section 13.03(b). After owner. For the same reason, the voting, consenting, or tendering of shares in one voting trust does not bar the assertion of appraisal rights with respect to shares of the same class or series in another voting trust.

the corporation has received the form of consent required by section 13.03(b)(1), the corporation must deal with the Because of the difference in focus of sections 13.04(a) and (b), actions taken by a beneficial shareholder, or, in the case of a voting trust, do not affect any shares of which it is the voting trust beneficial owner, and the affirmative vote, consent, or tender of shares in a voting trust do not affect any shares which the same shareholder owns as a beneficial shareholder.

Subchapter B.

PROCEDURE FOR EXERCISE OF APPRAISAL RIGHTS

§ 13.20. NOTICE OF APPRAISAL RIGHTS

• (a) WhereWhen any corporate action specified in section 13.02(a) is to be submitted to a vote at a shareholders’ meeting, the meeting notice (or whereif no approval of suchthe corporate action is required pursuant toby reason of section 11.04( j), the offer made pursuant to section 11.04( j)), must state that the corporation has concluded that appraisal rights are, are not, or may be available under this chapter. If the corporation concludes that appraisal rights are or may be available, a copy of this chapter must accompany the meeting notice or offer sent to those record shareholders entitled to exercise appraisal rights.
• (b) In a merger pursuant to section 11.05, the parent entity shall notify in writing all record shareholders of the subsidiary who are entitled to assert appraisal rights that the corporate action became effective. Such notice shall be sent within 10 days after the corporate action became effective and include the materials described in section 13.22.
• (cb)WhereWhen approval of any corporate action specified in section 13.02(a) is to be approvedsought by written consent of the shareholders pursuant to section 7.04:, (1) written notice that the corporation has concluded that appraisal rights are, are not, or may be available shall be sent(i) given to each record shareholder from whom a consent is solicited at the time the consent of suchthe shareholder is first solicited and, if the corporation has concluded that appraisal rights are or may be available, the notice must be accompanied by a copy of this chapter; and (2ii) written notice that appraisal rights are, are not or may be available must be delivered together included with the notice to nonconsenting and nonvoting shareholders required by sections 7.04(e) and (f ), may include the materials described in section 13.22 and, if the corporation has concluded that appraisal rights are or may be available, must be accompanied by a copy of this chapter.
• (c)In a merger pursuant to section 11.05 in which the corporation is the subsidiary or when a corporate action for which appraisal rights have been provided pursuant to section 13.02(a)(6) does not require shareholder approval, notice of appraisal rights shall be given to shareholders as provided in section 13.22(a).
• (d)Where corporate action described in section 13.02(a) is proposed, or a merger pursuant to section 11.05 is effected, the notice referred to in subsection (a) or (c), ifIf the corporation concludes that appraisal rights are or may be available, and in subsectionthe notices referred to in subsections (a), (b) must, and (c) shall be accompanied by the following, or the following shall be made available to the shareholders to whom the notices are given:
  • (1) financial statements of the corporation that issued the shares thatwhich may be subject to appraisal, consisting of a balance sheet as of the end of a fiscal year ending not more than 16 months before the date of the notice, an income statement for that year, and a cash flow statement for that year; provided that, or, if suchthose financial statements are not reasonably available, the corporation shall provide reasonably equivalent financial information; and
  • (2) the latest interim financial statements of suchthe corporation, if any.; and
  • (3) a copy of this chapter.
• (e)The financial statements described in this section and section 13.24(b), and the copies of this chapter referred to in this section and section 13.22(b), shall either be delivered or shall be made available by posting on the corporation’s website or by other generally recognized means, including in any manner permitted by the applicable rules of the United States Securities and Exchange Commission. If financial statements have been prepared for the corporation on the basis of generally accepted accounting principles for the specified period, the corporation shall deliver or make available those financial statements. If the annual financial statements to be delivered or made available are audited or otherwise reported upon by a public accountant, the report shall also be delivered or made available. The notices must state how the financial statements and copies of this chapter that are to accompany those notices shall be made available if they are not delivered.
• (ef)TheA shareholder’s right to receivehave the information described in subsection (d) delivered or made available may be waived in writing by athe shareholder before or after the corporate action.

CROSS-REFERENCES

• Availability of appraisal rights, see § 13.02.
• “Beneficial shareholder,” “record shareholder” and “voting trust beneficial ownerDeliver” defined, see §§ 1.40 and 13.01.
• Meeting notice, see § 7.05.
• Merger of subsidiary, see § 11.05.
• Notices and other communications, see § 1.41.
• Shareholder action without a meeting“Record shareholder” defined, see § 7.04 1.40.
• “Shareholder” defined, see §§ 1.40 and 13.01 13.01.
• Shareholders’ meetings, see §§ 7.01 through 7.03.

OFFICIAL COMMENT

The notices required by sectionsunder section 13.20(a), (b) and (c) are necessary because many shareholders domay not know what appraisal rights they may have or how to assert them. Because appraisal Appraisal is an “opt in” remedy, so shareholders otherwise entitled to an appraisal of their shares by reason of a corporate actionsaction specified in section 13.02(a) must elect whether to seek that remedy or accept the results of that action.

The notices in section 13.20(a) and (b) are intended to inform a shareholder of its rights before it votes, tenders, or consents in writing in a manner that would bar it from seeking appraisal. The matters in section 13.20(c) require no approval by shareholders, so those notices are sent with the appraisal notice and form provided for in section 13.22 after the corporate action becomes effective.

Section 13.20(d) specifies certain disclosure requirements for corporate actions for which appraisal rights are provided. Disclosure of additional information may be necessary under common law disclosure duties.

By specifying certain disclosure requirements, section 13.20(d) reduces the risk, in the transactions to which it applies, of an uninformed shareholder decision whether to exercise appraisal rights. Section 13.31(b)(1) provides that a corporation may be liable for the fees and expenses of counsel and experts for the respective parties for failure to comply substantially with sections 13.20 and 13.24.

§ 13.21. NOTICE OF INTENT TO DEMAND PAYMENT AND CONSEQUENCES OF VOTING OR CONSENTING ASSERT APPRAISAL RIGHTS

• (a) If a corporate action specified in section 13.02(a) is to be submitted to a vote at a shareholders’ meeting, a shareholder who wishes to assert appraisal rights with respect to any class or series of shares: shall cause to be delivered to the corporation, before the vote is taken, written notice of the shareholder’s intent to
  • (1) shall deliver to the corporation, before the vote is taken, written notice of the shareholder’s intent to demand payment if the proposed action is effectuated; and
  • (2) shall not vote, or cause or permit to be voted, any shares of such class or series in favor of the proposed action.
• (b) If a corporate action specified in section 13.02(a) is to be approved by written consent, a shareholder who wishes to assert appraisal rights with respect to any class or series of shares shall not sign a consent in favor of the proposed action with respect to that class or series of sharesif the proposed action is effected.
• (cb)If a corporate action specified in section 13.02(a) does not require shareholder approval pursuant toby reason of section 11.04( j), a shareholder who wishes to assert appraisal rights with respect to any class or series of shares (i) shall delivercause to be delivered to the corporation before the shares are purchased pursuant to the offer contemplated by section 11.04( j) written notice of the shareholder’s intent to demand paymentassert appraisal rights with respect to that class or series if the proposed action is effected; and (ii) shall not tender, or cause or permit to be tendered, any shares of such class or series in response to such offer.
• (d)A shareholder who fails to satisfy the requirements of subsection (a), (b) or (c) is not entitled to payment under this chapter.
• (c)The notice of intent to assert appraisal rights required by subsection (a) or (b) shall be signed by the record shareholder and must include (i) the name and address of the beneficial shareholder or voting trust beneficial owner on whose behalf the notice is given; (ii) if the beneficial shareholder or voting trust beneficial owner is not the record shareholder, the name and address of the record shareholder and of any bank, brokerage firm, or other intermediary through which the shares are held; (iii) if the shares are in a voting trust the name or other identification of the voting trust; and (iv) the number of shares of each relevant class or series for which there is an intent by such beneficial shareholder or voting trust beneficial owner to assert appraisal rights.
• (d)After the notice of intent is given, any subsequent action that a shareholder is required or permitted to take under chapter 13 may be taken by the beneficial shareholder or, if permitted under the terms of the voting trust agreement, the voting trust beneficial owner, identified in the notice of intent without any further action or authorization by the record shareholder.
• (e)Notices and communications to record shareholders required under this chapter after a notice of intent is given shall also be given to the beneficial shareholder or voting trust beneficial owner identified in that notice of intent.

CROSS-REFERENCES

• “Beneficial shareholder,” “record shareholder,” and “voting trust beneficial owner” defined, see § 1.40.
• “Deliver” defined, see § 1.40.
• Notices and other communications, see § 1.41.
• “Shareholder action without a meeting” defined, see § 7.04 13.01.
• Voting trusts, see § 7.30.

OFFICIAL COMMENT

A notice of intent to assert appraisal rights as described in section 13.21 must be delivered if a shareholder wishes to exercise appraisal rights with respect to a corporate action that is submitted to a vote of shareholders or that involves an offer made pursuant to section 11.04( j). The information required in the notice of intent by section 13.21(c) enables the corporation to understand, among other things, which shareholders may later demand appraisal under section 13.23. Further, because the notice of intent establishes the maximum number of shares for which appraisal can be sought, it allows the corporation and other interested parties to estimate how much of a cash payment may be required as a result of the appraisal process. As the corporation may have no way of knowing how many shares are owned by a beneficial shareholder or voting trust beneficial owner, section 13.21(c) requires the shareholder’s notice of intent to state an actual “number” of shares for which appraisal may be sought rather than “all” or some percentage of the shareholder’s shares. Section 13.03 sets out limits on the shares that can be included in the notice of intent.

Section 13.21 applies to all transactions requiring appraisal, except short-form mergers under section 11.05 in which shareholders of the subsidiary do not vote on the transaction but are nevertheless entitled to appraisal.

The notice from the shareholder required by section 13.21(a) enables the corporation, among other things, to estimate how much of a cash payment may be required by reference to the maximum number of shares for which appraisal may be sought. It also limits the number of persons to whom the corporation must give further notice during the remainder of the appraisal process.

After the notice of intent is given, section 13.21(d) authorizes the beneficial shareholder or voting trust beneficial owner identified in that notice to act thereafter for its own account in the appraisal process. Because this authorization does not purport to override other arrangements between the parties, it is only effective for voting trust beneficial owners “if permitted under the terms of the voting trust agreement.”

To comply with section 13.21, some record holders may submit notices with statements such as “we hereby assert appraisal (or dissenters’) rights” on behalf of a specified shareholder. If such a form meets the other requirements of section 13.21(c) it would satisfactorily indicate an intent to assert appraisal rights, but it does not obviate the requirement under section 13.23 to submit a subsequent demand for appraisal. Shareholders who contemplate seeking appraisal and have shares held through brokers may choose to have those shares transferred into the shareholder’s name to become the record holder and thereby eliminate the need to deal with any intermediaries in the appraisal process.

§ 13.22. APPRAISAL NOTICE AND FORM

• (a) If a corporate action requiringentitling shareholders to appraisal rights under section 13.02(a) (other than section 13.02(a)(3) or, in the circumstances provided below, section 13.02(a)(6)) becomes effective, the corporation shall deliver athe written appraisal notice and the form required by subsection (b) to (i) all shareholders who satisfy the requirements of sectionsdelivered, or on whose behalf there was delivered, to the corporation a notice of intent to assert appraisal rights pursuant to section 13.21(a), or (b), or (c)ii) if the corporate action was approved by written consent of the shareholders, each nonconsenting or nonvoting shareholder who on the effective date of the corporate action is the record shareholder of shares of a class or series for which appraisal rights may be available. In the case of a merger underdescribed in section 11.0513.02(a)(3), the parent entity shall deliver anthe appraisal notice and form to all record shareholders of the subsidiary at the time the corporate action became effective who may be entitled to assert appraisal rights. If a corporate action is one for which appraisal rights have been provided pursuant to section 13.02(a)(6) and the corporate action did not require shareholder approval, the corporation shall deliver the appraisal notice and form to all record shareholders at the time the corporate action became effective who may be entitled to assert appraisal rights.
• (b) The appraisal notice shall be deliveredgiven no earlier than the date the corporate action specified in section 13.02(a) became effective, and no later than 10 days after suchthat date, and mustshall identify the corporate action and state that appraisal rights are available. The appraisal notice also shall:
  • (1) be accompanied by a form to be utilized by shareholders for asserting appraisal rights that:
    • (i) requires providing (A) the name and address of the beneficial shareholder or voting trust beneficial owner on whose behalf appraisal rights are being asserted; (B) if that shareholder is not the record shareholder, the name and address of the record shareholder and of any bank, brokerage firm, or other intermediary through which the shares are held; (C) if the shares are in a voting trust, the name or other identification of the voting trust; and (D) the number of shares of each relevant class or series for which appraisal is asserted on behalf of that beneficial shareholder or on behalf of that voting trust beneficial owner with respect to shares in the voting trust;
    • (ii) states that the delivery of the form constitutes a representation on behalf of the beneficial shareholder or voting trust beneficial owner for whom appraisal rights are being asserted that such shareholder’s assertion of appraisal rights is not prohibited by the provisions of section 13.04; and
    • (1) supply a form that (i) iii) specifies the first date of any announcement to shareholders made before the date the corporate action became effective of the principal terms of the proposed corporate action, and (ii), if such an announcement was made, requires the shareholder asserting appraisal rights to certify whether beneficial ownership of those shares for which appraisal rights are asserted was acquired before that date, and (iii) requires the shareholder asserting appraisal rights to certify that such shareholder did not vote for or consent to the transaction as to therequests a statement of the number of shares of each class or series of shares for which appraisal is soughtasserted of which the shareholder became the beneficial shareholder or the voting trust beneficial owner, as applicable, before the date of that announcement;
  • (2) state:
    • (i) where the form shall be sent and where certificates for certificated shares shall be deposited and the date by which those certificates must be deposited, which date may not be earlier than the date by which the corporation must receive the required form under subsection (b)(2)(ii);
    • (i) where the form shall be returned;
    • (ii) where certificates for certificated shares for which appraisal is demanded shall be deposited, or if shares for which appraisal is demanded are issued without certificates and remain outstanding after the effective time of the corporate action, where satisfactory evidence of transfer of those shares to the corporation shall be delivered;
    • (iii) where there shall be delivered satisfactory evidence that the shares for which appraisal is demanded were owned by the beneficial shareholder or voting trust beneficial owner on whose behalf appraisal is asserted (A) at the date the notice of intent was given, if a notice of intent to assert appraisal was required; (B) at the effective time of the corporate action; and (C) at the date of any delivery of certificates or transfer of shares to the corporation under subsection (b)(2)(ii), if that shareholder was not the record shareholder at all of those times;
    • (iiiv)a datethe deadline by which the corporation shall receive both the form, which date and any certificates, evidence of transfer, or evidence of ownership required by subsection (b)(2)(ii) or (b)(2)(iii), which deadline may not be fewer than 40 nor more than 60 days after the date the subsection (a) appraisal notice is sentgiven, and state that the shareholder shall have waived the right to demandassert appraisal rights for all shares with respect to the shares unlesswhich the form isand any such required certificates and evidence are not received by the corporation by suchthe specified datedeadline;
    • (v)the deadline by which any notice to withdraw from the appraisal process under section 13.23(b) shall be received by the corporation, which deadline shall be 20 days after the deadline specified pursuant to subsection (b)(2)(iv);
    • (iiivi)the corporation’s estimate of the fair value of the sharesa share of that class or series;
    • (ivvii)that, if requested in writing, the corporation will provide, to the requesting shareholder so requesting, within 10 days after the datelater of the deadline specified inpursuant to subsection (b)(2)(ii)iv) or the date the corporation received the request, the number of shareholders who return thereturned forms by thethat specified date and the total number of shares of each class or series owned by them for which appraisal is sought; and
    • (v)the date by which the notice to withdraw under section 13.23 shall be received, which date shall be within 20 days after the date specified in subsection (b)(2)(ii); and
    • (viii)that the form shall be signed by the record shareholder or, if a notice of intent was given under section 13.21, it may be signed by the beneficial shareholder or, if permitted under the terms of the voting trust agreement, the voting trust beneficial owner, identified in that notice of intent; and
  • (3) be accompanied by, or make available in accordance with section 13.20(e), a copy of this chapter.

CROSS-REFERENCES

• Action of shareholders by written consent and notices to nonconsenting and nonvoting shareholders, see § 7.04.
• After-acquired shares, see § 13.25.
• “Beneficial shareholder,” “record shareholder,” and “voting trust beneficial owner” defined, see § 1.40.
• “Corporation” defined, see § 13.01.
• “Deliver” defined, see § 1.40.
• Effective time and date of conversion, domestication, merger, share exchange, or amendment to articles of incorporation, see § 1.23.
• “Fair value” defined, see § 13.01.
• Merger of subsidiary, see § 11.05.
• Notices and other communications, see § 1.41.
• Notice of intent to assert appraisal rights, see § 13.21.
• “Shareholder” defined, see § 13.01.
• Voting trusts, see § 7.30.

OFFICIAL COMMENT

The purpose of section 13.22 is to require the corporation to provide shareholders with information and a form for perfecting appraisal rights.

Section 13.22 requires the corporation to provide shareholders with information and a form for asserting appraisal rights. The form and the information it requires will help the corporation evaluate whether the shareholder is entitled to assert appraisal rights, did so in accordance with chapter 13, and is entitled to payment, including the initial payment under section 13.24.

Section 13.22(b)(1)(iii) requires that the corporation to specify the date of the first announcement to shareholders of the principal terms of the proposed corporate action. This date determines the rights of shareholder-transferees. Persons who became shareholders before that date are entitled to full appraisal rights, while persons who became shareholders on or after that date are entitled only to the more limited rights provided by section 13.25. See the Official Comments to sections 13.23 and 13.25 prior to the effective date. If shares were acquired on or after the date of that announcement the corporation will have the right under section 13.25 to withhold the initial payment described in section 13.24 with respect to those shares. The date the principal terms of the transaction were announced by the corporation to shareholders may, for example, be the day thethose terms were communicated directly to the shareholders, set out in a corporate press release, or included in a public filing with the Securities and Exchange Commission, published in a newspaper of general circulation that can be expected to reach the financial community, or any earlier date on which suchthose terms were first similarly announced to shareholders by any other person or entity to such persons or sources. Any announcement to news media or to shareholders that relates to the proposed transaction but does not contain the principal terms of the transaction to be authorized at the shareholders’ meeting is not considered to be an announcement for theis not relevant for purposes of section 13.22(b)(1)(iii). If the principal terms changed after their initial announcement, the relevant date would be when the changed principal terms were so announced. If a corporation or other person does not make a publicsuch an announcement of the terms of a proposed corporationto shareholders before the corporate action becomes effective, the requirement of section 13.22(b)(1)(iii) is not applicable.

The information required bySatisfactory evidence of ownership could be, for example, brokerage statements covering the relevant dates. A shareholder whose certificates are not available may need to comply with the corporation’s procedures for lost or stolen certificates before it can comply with the deposit requirements of the appraisal notice and form. The information that the corporation must provide under sections 13.22(b)(2)(iiivi) and (ivvii) is intended to help shareholders assess whether they wish to demand payment or to withdraw their demand for appraisal, although the information under section 13.22(b)(2)(ivvii) is required to be sent only to those shareholders who requested it in writing from whom the corporation has received a written request.

§ 13.23. PERFECTIONASSERTION OF APPRAISAL RIGHTS; RIGHT TO WITHDRAW; RESTORATION OF RIGHTS

• (a) A shareholder who receives notice pursuant to section 13.22 and who wishes to exercise appraisal rights shall sign and return the form sent by the corporation and, in the case of certificated shares, deposit the shareholder’s certificates in accordance with the terms of the notice by the date referred to in the notice pursuant to section 13.22(b)(2)(ii). In addition, if applicable, the shareholder shall certify on the form whether the beneficial owner of such shares acquired beneficial ownership of the shares before the date required to be set forth in the notice pursuant to section 13.22(b)(1)(i). If a shareholder fails to make this certification, the corporation may elect to treat the shareholder’s shares as after-acquired shares under section 13.25. Once a shareholder deposits that shareholder’s certificates or, in the case of uncertificated shares, returns the signed forms, that shareholder loses all rights as a shareholder, unless the shareholder withdraws pursuant to subsection (b).
• (a) To be entitled to receive payment under this chapter, a shareholder who is entitled to assert appraisal rights shall, by the deadline specified in the appraisal notice, cause the form provided for in section 13.22(b) to be signed and returned, any certificates for shares to be deposited, and any evidence of transfer or ownership to be provided, in each case as required by the appraisal notice and form. The form shall be signed by the record shareholder or, if a notice of intent was given under section 13.21, it may be signed by the beneficial shareholder or, if permitted under the terms of the voting trust agreement, the voting trust beneficial owner, named in that notice of intent. Any further action that is required or permitted to be taken by a shareholder under sections 13.23 through 13.31 may be taken by the record shareholder or by the beneficial shareholder or, if permitted under the terms of the voting trust agreement, the voting trust beneficial owner, identified in the form delivered under this section 13.23(a), and notices and communications to shareholders required under this chapter thereafter shall also be given to that beneficial shareholder or voting trust beneficial owner.
• (b) A shareholder who has complied with subsection (a) may nevertheless decline to exercise appraisal rights and withdraw from the appraisal process by so notifying the corporation in writing by the datewithdrawal deadline set forth in the appraisal notice pursuant to section 13.22(b)(2)(v). A shareholder who fails to so withdraw from the appraisal process may not thereafter withdraw without either the corporation’s written consent or leave of the court for good cause shown.
• (c) AThe beneficial shareholder who does not sign and return the form and, in the case of certificated shares, deposit that shareholder’s share certificates where required, each by the date set forth in the notice describedor voting trust beneficial owner with respect to whose shares appraisal is asserted in accordance with subsection (a), and any related record shareholder of those shares, loses all rights as such a shareholder of those shares on the date the shareholder delivers to the corporation the form provided for in section 13.22(b), shall not be entitled to payment under this chapter.
• (d) Upon withdrawal from the appraisal process in accordance with subsection (b), deemed withdrawal under section 13.26(d)(ii), or a determination by the court that a shareholder is not entitled to assert appraisal rights or receive payment under this chapter with respect to all or a portion of its shares, the rights as a shareholder with respect to the shares subject to the withdrawal or determination shall be restored to the rights which the shareholder would have had on and after the effective time of the corporate action if the shareholder had not asserted appraisal rights. However, such shares shall not be treated as if entitled to vote between the date of the delivery of the form by such shareholder pursuant to subsection (a) of this section 13.23 and the date of the restoration of rights under this subsection or with respect to any matter for which the record date for voting was between those two dates. The restoration of rights under this subsection shall not affect the validity of any action taken by the corporation, the board of directors, or the shareholders after the delivery by such shareholder of the form pursuant to subsection (a) of this section and prior to that restoration of rights. If those shares would have remained outstanding after the effective time of the corporate action, any certificates for those shares deposited, and any of those shares issued without certificates transferred to the corporation on behalf of the shareholder, shall be returned, and no such return will be considered an issuance of shares. If the shareholder had received any payments under this chapter with respect to those shares, however, such payments shall be returned to the corporation or, at the option of the corporation, credited by the corporation against any payment due to the shareholder as a result of such restoration of rights, and the restoration of rights and return of those shares shall not take place until those payments to the shareholder are so returned or credited.

CROSS-REFERENCES

• After-acquired shares, see § 13.25.
• Appraisal notice and form, see § 13.22.
• “Beneficial shareholder,” “record shareholder,” and “voting trust beneficial owner” defined, see § 1.40.
• “Corporation” defined, see § 13.01.
• “Deliver” defined, see § 1.40.
• Notice of intent to assert appraisal rights, see § 13.22 13.21.
• Notices and other communications, see § 1.41.
• “Shareholder” defined, see § 13.01.
• Voting trusts, see § 7.30.

OFFICIAL COMMENT

In the case of a transaction involving a vote by shareholders, returning the signed form and, in the case of certificated shares, depositing the shares are or a two-step transaction under section 11.04( j), the shareholder’s return of the signed appraisal form and taking of the other actions described in section 13.23(a) are the confirmation of the intention expressed earlier notice of intent under section 13.21(a) to pursueassert appraisal rights. In the case of a merger of a subsidiary under section 11.05, the forma transaction approved by written consent where the shareholder was a non-voting or non-consenting shareholder, or a corporate action for which appraisal rights have been provided under section 13.02(a)(6) but which does not require shareholder approval, the actions required by section 13.23 isare the shareholder’s first statement of this intentionsteps with respect to asserting appraisal rights.

Information on the appraisal form regarding whether the beneficial shareholder acquired beneficial ownership of the shares before, on or after the date the transaction was announced permits the corporation to exercise its right under section 13.25 to defer payment of compensation for certain shares. The corporation may elect to proceed under section 13.25 with respect to those shareholders who were required to make the certification but did not do so.

If a notice of intent was given, section 13.21(d) authorizes the beneficial shareholder or voting trust beneficial owner identified in that notice to act thereafter for its own account in the appraisal process. If no notice of intent was required, section 13.23(a) provides a similar authorization for future actions by the beneficial shareholder or voting trust beneficial owner identified in the form delivered under that section. As is the case under section 13.21(d), this authorization does not override other arrangements between the parties, so it is only effective for voting trust beneficial owners “if permitted under the terms of the voting trust agreement.” These authorizations are distinct from rights that might be conferred by a beneficial ownership certificate filed with the corporation in accordance with a procedure established under section 7.23. The person identified in such a certificate as the beneficial owner has elected to be treated by the corporation as the record shareholder to the extent of the rights conferred. If such a certificate conferred the ability to exercise appraisal rights on the beneficial shareholder, that beneficial shareholder could participate in the appraisal process as a record shareholder.

Once a shareholder deposits that shareholder’s shares asreturns the form required by section 13.23(a), that shareholder (and any related record shareholder) loses allany rights as a shareholder unless the shareholder withdraws from the appraisal process pursuant toremaining after the effectiveness of the corporate action unless those rights are restored as described in section 13.23(bd).

If Under section 13.23(c), a shareholder who fails to comply with the requirements ofdoes not take the actions required by section 13.23(a) loses all rights to pursue appraisal and obtain payment under this chapter. If a beneficial shareholder wishes to assert appraisal rights in place of the record shareholder, the beneficial shareholder must also comply with section 13.03(b).it is not entitled to payment under chapter 13.

§ 13.24. PAYMENT

• (a) Except as provided in section 13.25, within 30 days after the deadline for returning the form required byprovided for in section 13.22(b)(2)(ii) is due, the corporation shall pay inmake cash to those shareholders who complied with section 13.23(a)payments with respect to the beneficial shareholders or voting trust beneficial owners identified in the returned forms and who are entitled to assert appraisal rights, of the amount the corporation estimates to be the fair value of theirthe shares for which such shareholders are entitled to receive payment under this chapter, plus interest.
• (b) The payment with respect to each such shareholder pursuant to subsection (a) mustshall be made to the record shareholder identified in the form (unless that record shareholder advises otherwise), and shall identify the beneficial shareholder or voting trust beneficial owner with respect to whom the payment is made and any bank, brokerage firm, or other intermediary through which the shares are held that is identified in the form. The payment shall be accompanied by, or in the case of the financial statements described in subsection (b)(1) made available in accordance with section 13.20(e):
  • (1) (i) financial statements of the corporation that issued the shares to be appraised, consisting of a balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, and a cash flow statement for that year; provided thator, if such annualthose financial statements are not reasonably available, the corporation shall provide reasonably equivalent financial information,; and (ii) the latest interim financial statements of such corporation, if any, all as described in section 13.20(e);
  • (2) a statement of the corporation’s estimate of the fair value of the sharesa share, which estimate shall equal or exceed the corporation’s estimate given pursuant to section 13.22(b)(2)(iiivi); and
  • (3) a statement that those shareholders described in subsection (a) have the right to demand further payment underin accordance with section 13.26 and that if any sucha shareholder does not do so withinby the time perioddate specified in section 13.26(b), suchthe statement (which date shall be the date 30 days after the date by which payment was required to be made under subsection (a)), that shareholder shall be deemed to have accepted the payment made for those shares under subsection (a) and any payment for other shares of the same class or series offered under section 13.25(b) in full satisfaction of the corporation’s obligations under this chaptershareholder’s appraisal rights with respect to the shares referred to in this subsection (b)(3).
• (c) If the corporation determines that a shareholder with respect to whom a form was returned pursuant to section 13.23 is either not entitled to assert appraisal rights or not entitled to payment under this chapter with respect to all or a portion of its shares for which appraisal was asserted, the corporation need not make the payment described in subsection (a) for those shares it determined were not so entitled. In that case, the corporation shall give written notice to the shareholder which must (i) state that determination and a brief description of the reasons for it; (ii) state that the shareholder has the right to contest that determination in accordance with section 13.26, and that if the shareholder does not do so by the date specified in the corporation’s notice (which date shall be the date 30 days after the date by which payment was required to be made under subsection (a)) it shall be deemed to have waived any right to so contest the determination and to have withdrawn from the appraisal process with respect to the relevant shares; and (iii) include the information described in subsection (b)(1) (which may be made available as provided in section 13.20(e)) and subsection (b)(2). That written notice shall be given by the corporation within 30 days after the date the form provided for by section 13.22(b) was due to be returned to the corporation.

CROSS-REFERENCES

• After-acquired shares, see § 13.25.
• Appraisal notice and form, see § 13.22.
• “Beneficial shareholder,” “record shareholder,” and “voting trust beneficial owner” defined, see § 1.40.
• “Corporation” defined, see § 13.01.
• “Fair value” defined, see § 13.01.
• “Interest” defined, see § 13.01.
• Notice of appraisal rightsNotices and other communications, see § 13.22 1.41.
• Payment demand“Shareholder” defined, see § 13.23 13.01.
• Rejection of corporation’s offer, see § 13.26.

OFFICIAL COMMENT

Section 13.24 is applicable to shareholders who have complied with section 13.23(a) and to shareholders described in section 13.25(a) if the corporation so chooses. The corporation must, however, elect to treat all shareholders described in section 13.25(a) either under section 13.24 or under section 13.25; it may not treat some shareholders described in section 13.25(a) under section 13.24 but treat others under section 13.25.

The requirement of section 13.24 that the corporation pay itsto qualifying shareholders the corporation’s estimate of the fair value of the stock shares (plus interest) reflects a judgment that a difference of opinion over the total amount to be paid should not delay payment of the amount that is undisputed. Because a former That initial payment may be deferred with respect to after-acquired shares as described in section 13.25. Because any payment under section 13.24 will be made before the commencement of a proceeding to determine the fair value of the shares and other matters raised in the appraisal process, no judicial determination will then have been made regarding a shareholder’s entitlement to assert appraisal rights and receive payment. Therefore, the information required in the form provided for under section 13.22(b) will help the corporation evaluate those matters. In the appraisal proceeding under section 13.30, the court is to make a number of determinations, including, for example, whether a shareholder, including one who received the initial payment, is entitled to assert appraisal rights and receive payment under chapter 13.

Because a shareholder must decide whether to accept thatthe initial payment under section 13.24(a) (and any amount offered under section 13.25) in full satisfaction of its appraisal rights with respect to specified shares, the corporation must include with the payment the information specifiedset forth in section 13.24(b), which includes a reminder of the formerthat shareholder’s further rights. Even though thefinancial information specified in section 13.24(b) wasmay have been previously furnished or made available under section 13.20(d) at the time notice of appraisal rights was given, it must still be furnished or made available under section 13.24(b) at the time of the initial payment. That information may need to be updated from what was delivered pursuant to section 13.20 to satisfy the requirements of section 13.24(b).

§ 13.25. AFTER-ACQUIRED SHARES

• (a) AIf a statement about the date of acquisition of shares was requested by the form provided for in section 13.22(b)(1)(iii), a corporation may elect to withhold payment otherwise required by section 13.24 from any shareholder who was required to, but did not certify that beneficial ownership of all of the shareholder’s shares for which appraisal rights are asserted was acquiredfor all shares of all shareholders with respect to which the shareholders did not become, or the returned form does not indicate that the shareholder became, the beneficial shareholder or voting trust beneficial owner, as applicable, before the date set forth in the appraisal notice sentform pursuant to section 13.22(b)(1)(iii).
• (b) If the corporation elected to withhold payment under subsection (a), it shall, within 30 days after the form required by section 13.22(b)(2)(ii) is due, notify all shareholders who are described inNo later than the date by which payment otherwise would be required under section 13.24, the corporation shall give notice to all beneficial shareholders or voting trust beneficial owners from whom payment was withheld pursuant to subsection (a):
  • (1) of the information required by section 13.24(b)(1), or make that information available in accordance with section 13.20(e);
  • (2) of the corporation’s estimate of fair value of a share pursuant to section 13.24(b)(2);
  • (3) that they may either (i) demand payment under section 13.26 or (ii) accept the corporation’s estimate of fair value, plus interest, with respect to the shares for which payment was withheld pursuant to subsection (a) by accepting both the corporation’s estimate of fair value for those shares, plus interest, and any payment made under section 13.24 for other shares of the same class or series, in full satisfaction of their demands or demandthe shareholder’s appraisal under section 13.26rights with respect to all of those shares;
  • (4) that those beneficial shareholders and voting trust beneficial owners who wish to accept such offer shallthat estimate of fair value may so notify the corporation of their acceptance ofby the date specified in the corporation’s offer withinnotice (which date shall be the date 30 days after receiving the offerthe date by which payment otherwise would have been required under section 13.24); and
  • (5) that those beneficial shareholders and voting trust beneficial owners who do not satisfy the requirements for demanding appraisal under section 13.26payment in accordance with section 13.26 by the deadline specified in the corporation’s notice (which shall be the date 30 days after the date by which payment otherwise would have been required under section 13.24) shall be deemed to have accepted the corporation’s offerestimate of fair value, and any payment made under section 13.24, in full satisfaction of the shareholder’s appraisal rights with respect to all of those shares.
• (c) Within 10 days after receiving thea beneficial shareholder’s or voting trust beneficial owner’s acceptance pursuant to subsection (b)(4), the corporation shall pay in cash to that shareholder the amount it offeredthe corporation estimated as fair value under subsection (b)(2) plus interest to each shareholder who agreed to accept the corporation’s offer in full satisfaction of the shareholder’s demandfor all shares for which payment was withheld pursuant to subsection (a).
• (d) Within 40 days after delivering the notice described in subsection (b)the date by which payment otherwise would have been required under section 13.24, the corporation shall pay in cash the amount it offered to payestimated as fair value under subsection (b)(2) plus interest for all shares for which payment was withheld pursuant to subsection (a) to each shareholder deemed to have accepted the estimate of fair value as described in subsection (b)(5).

CROSS-REFERENCES

• “Beneficial shareholder” and “voting trust beneficial owner” defined, see § 1.40.
• “Corporation” defined, see § 13.01.
• “Fair value” defined, see § 13.01.
• “Interest” defined, see § 13.01.
• Notices and other communications, see § 1.41.
• Rejection of corporation’s offer, see § 13.26.
• “Shareholder” defined, see § 13.01.

OFFICIAL COMMENT

If a publican announcement of the proposedto shareholders of the principal terms of the corporate action is made before the action becomes effective, section 13.25(a) gives the corporation the option not to make payment under section 13.24(a) to holders offor shares acquired on or after the date of that announcement or to holders of shares who are required to but do not certify under section 13.23(a) when they acquired beneficial ownershipfor which the shareholder’s form did not state the date of acquisition. Instead, the corporation may givemust provide to all of these shareholders an offer of payment which is conditioned on their agreement to accept itits estimate of the fair value of the shares. Each of those shareholders may accept that estimate, together with any payment made under section 13.24, in full satisfaction of their claim. its claim with respect to the shares covered by those sections. If the corporation withholds the payment under section 13.24 for any such shareholder, it must do so with respect to all of that beneficial shareholder’s or voting trust beneficial owner’s after-acquired shares and shares with respect to which a requested response was not made, and it must do the same with respect to all such shareholders. Similarly, if the corporation makes a payment under section 13.24 for any after-acquired share or any share for which no response was made, it must do so for every such share of every shareholder. All such shares and shareholders must be treated in the same manner.

A shareholder that does not desire to accept the corporation’s estimate of fair value under this section may, under section 13.26, reject the corporation’s estimate and demand its own estimate of fair value. A shareholder from whom payment was withheld under this section that does not satisfy the requirements of section 13.26 shall be deemed to have accepted the corporation’s estimate of fair value under this section.

The date used as a cut-off for determining the application of this section 13.25 is when “the principal terms” of the proposed transaction are first announced to shareholders. See the Official Comment to section 13.22. The cut-off is not set at before the effective time, rather than an earlier date, such as when the first public statement was made that the corporate action was under consideration was made, because the goal of this section is to discourage use of appraisal rights as a speculative device only after the principal terms of the proposed transaction are announced.

A shareholder may accept the offered payment in full satisfaction of that shareholder’s claim; alternatively, a shareholder may reject the corporation’s offer and demand a judicial determination under section 13.26 and payment of the amount so determined at the termination of the proceeding. A shareholder who does not satisfy the requirements of section 13.26 shall be deemed to have accepted the corporation’s offer.

§ 13.26. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER OR DENIED PAYMENT

• (a) A shareholder paid pursuant to section 13.24 who is dissatisfied with the amount of the payment made under section 13.24 or the estimate of fair value under section 13.25 shall notify the corporation in writing of that shareholder’s estimate of the fair value of the shares and demand payment of that estimate (less any payment under section 13.24) plus interest. A for all shares of that beneficial shareholder offeredor voting trust beneficial owner in a voting trust, as the case may be, with respect to which payment was made under section 13.24 or withheld under section 13.25 who is dissatisfied with that offer shall reject the offer and demand payment of the shareholder’s stated estimate of the fair value of the shares plus interest.
• (b) A shareholder who fails to notify the corporation in writing of that shareholder’s demand to be paid the shareholder’s stated estimate of the fair value plus interest underas provided in subsection (a) within 30 days after receivingby the date specified in the corporation’s payment or offer of payment understatement pursuant to section 13.24 or(b)(3) or the corporation’s notice pursuant to section 13.25, respectively(b)(5), as the case may be, waives the right to demand payment under this sectionsubsection (a) and shall be entitled only to the payment made or offered pursuant to those respective sections.section 13.24 or the amount estimated pursuant to section 13.25, plus interest, in full satisfaction of the shareholder’s appraisal rights with respect to all of the shares for which payment was made under section 13.24 or withheld under section 13.25, as applicable.
• (c) A shareholder given notice by the corporation pursuant to section 13.24(c) who contends that it is entitled to assert appraisal rights and receive payment pursuant to this chapter with respect to all or a portion of the shares included in that notice shall notify the corporation in writing of that shareholder’s contention and a brief description of the reasons for it and either state (i) that it is willing to accept payment of the amount the corporation estimates to be the fair value of those shares as set forth in section 13.24(b)(2) and demand payment of that amount or (ii) the shareholder’s estimate of the fair value of those shares and demand payment of that estimate, in either case, plus interest. The fair value of a share estimated by a shareholder under subsection (c)(ii) may not be different from the amount accepted under section 13.24 or section 13.25 or demanded under subsection (a).
• (d) A shareholder who by the date specified in the corporation’s notice pursuant to section 13.24(c)(ii) does not notify the corporation in writing as provided in subsection (c) shall be deemed (i) to have waived any contention that it is entitled to assert appraisal rights or receive payment of fair value pursuant to this chapter with respect to its shares for which payment was not made under section 13.24(c) and (ii) to have withdrawn from the appraisal process with respect to those shares.

CROSS-REFERENCES

• After-acquired shares, see § 13.25.
• “Beneficial shareholder” and “voting trust beneficial owner” defined, see § 1.40.
• “Corporation” defined, see § 13.01.
• “Fair value” defined, see § 13.01.
• “Interest” defined, see § 13.01.
• Judicial appraisal, see § 13.30.
• Notices and other communications, see § 1.41.
• Offer of payment for after-acquired shares, see § 13.25.
• Other remedies, see § 13.40.
• Payment for shares, see § 13.24.
• “Shareholder” defined, see § 13.01.

OFFICIAL COMMENT

The provisions of sections 13.24, 13.25, 13.26, and 13.31 are designed to encourage settlement without a judicial proceeding.

The per share price that the corporation pays as fair value under section 13.24 and estimates under section 13.25 must be the same. If a shareholder received payment under section 13.24 for some shares and had payment withheld under section 13.25 for other shares, it must either move forward under section 13.26 with respect to all of those shares or accept the corporation’s payment and estimate of fair value with respect to all of those shares. It may not accept one amount as fair value under one section and seek a higher amount under another, including section 13.26(c).

A shareholder who is not content with the corporation’s remittance under section 13.24, or offer of remittance under section 13.25, and wishes to pursue appraisal rights further must state in writing the amount the shareholder is willing to accept. A shareholder whose demand is deemed arbitrary, unreasonable or not in good faith, however, runs the risk of being assessed litigation expenses under section 13.31. These provisions are designed to encourage settlement without a judicial proceeding.

A shareholder to whom the corporation has made payment (or who has been offered payment under section 13.25) must make a supplemental demand within 30 days after receipt of the payment or offer of payment to permit the corporation to make an early decision on initiating appraisal proceedings. A failure to make such demand causes the shareholder to relinquish under section 13.26(b) anything beyond the amount the corporation paid or offered to pay.

Subchapter C.

JUDICIAL APPRAISAL OF SHARES

§ 13.30. COURT ACTION

• (a) If a shareholder gives notice and makes demand for payment under section 13.26(a) or (c) which remains unsettled, then within 60 days after the date a shareholder must demand payment under section 13.26(a) or (c) the corporation shall commence a proceeding within 60 days after receiving the payment demand and petition thein the [name or describe court] for that court to determine the fair value of the shares and accrued interest, and such other matters as may be necessary, including which shareholders are entitled to assert appraisal rights and to receive payment under this chapter, which of their shares are qualified to receive payment, and any other matters arising under this chapter. If the corporation does not commence the proceeding within the 60-day period, it shall pay within 10 days after the expiration of that 60-day period in cash to each shareholderof those shareholders whose demands under section 13.26(a) or (c) remain unsettled the amount the shareholder demanded pursuant toin accordance with section 13.26 plus interest. If the proceeding is timely commenced but the corporation fails to name as a party a shareholder whose demand or notice under section 13.26(a) or (c) remains unsettled, that shareholder may be added as a party to the proceeding after the 60 days has expired, and the inadvertent failure of the corporation to initially name that shareholder as a party to the proceeding shall not obligate the corporation to pay that shareholder pursuant to the preceding sentence.
• (b) The corporation shall commence the proceeding in the [name or describe court].
• (cb)The corporation shall make allas parties to the proceeding, as in an action against their shares, all beneficial shareholders or voting trust beneficial owners (regardless of whether they are residents of this state) whose demands or notices under section 13.26(a) or (c) remain unsettled parties to the proceeding as in an action against their shares, and all. All parties shall be served with a copy of the petition. Nonresidents may be served by registered or certified mail or by publicationotherwise as provided by law.
• (dc)The jurisdiction of the court in which the proceeding is commenced under subsection (b) is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend a decision on the question of fair value. The appraisers shall have the powers described in the order appointing them, or in any amendment to it. The corporation and the shareholders demandingasserting appraisal rights are entitled to the same discovery rights as parties in other civil proceedings. There shall be no right to a jury trial.
• (ed)Each shareholder made a party to the proceeding that the court finds is entitled to assert appraisal rights and to receive payment under this chapter is entitled to judgment (i) for shares for which payment is entitled and a payment was made under section 13.24, the amount, if any, by which the court finds the fair value of the shareholder’sthose shares exceeds the amount paid by the corporation to the shareholder for suchcorporation's estimate of fair value paid under section 13.24 for those shares, plus interest on that excess, orand (ii) for the shareholder’s other shares for which payment is entitled, the fair value of those shares, plus interest, of the shareholder’s shares for which the corporation elected to withhold payment under section 13.25.
• (e)No appraisal proceeding under this section shall be dismissed as to any person without the approval of the court, and such approval may be conditioned upon such terms as the court deems just.

CROSS-REFERENCES

• After-acquired shares, see § 13.25.
• “Beneficial shareholder” and “voting trust beneficial owner” defined, see § 1.40.
• “Corporation” defined, see § 13.01.
• “Fair value” defined, see § 13.01.
• “Interest” defined, see § 13.01.
• “Person” defined, see § 1.40.
• “Proceeding” defined, see § 1.40.
• “Shareholder” defined, see § 13.01.