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93RD GENERAL ASSEMBLY
State of Illinois
2003 and 2004 SB2413
Introduced 2/3/2004, by Carol Ronen SYNOPSIS AS INTRODUCED: |
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Creates the Expatriate State Contractor Act. Prohibits executive branch State agencies from entering into contracts with expatriate corporations or their subsidiaries. Defines an expatriate corporation as a company that (i) is publicly traded in the U.S., (ii) has incorporated in a foreign tax haven, (iii) is traded primarily in the U.S., (iv) has no substantial business activity in the place of incorporation, and (v) meets other specified criteria. Exempts certain companies that were expatriates before January 1, 2005 and afford specified shareholder rights. Authorizes an agency to waive the prohibition if the contract meets a compelling public interest. Requires that contracts include the vendor's declaration of compliance and makes false declaration a Class A misdemeanor. Effective January 1, 2005.
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CORRECTIONAL BUDGET AND IMPACT NOTE ACT MAY APPLY | |
FISCAL NOTE ACT MAY APPLY |
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A BILL FOR
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SB2413 |
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LRB093 19121 JAM 44856 b |
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| AN ACT concerning procurement.
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| Be it enacted by the People of the State of Illinois,
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| represented in the General Assembly:
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| Section 1. Short title. This Act may be cited as the |
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| Expatriate State Contractor Act. |
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| Section 5. Findings. The General Assembly finds and |
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| declares all of the following: |
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| By reincorporating in tax haven countries, a number of
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| publicly traded United States based companies are avoiding |
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| their fair
share of Illinois taxes and have undermined the |
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| interests and
rights of their shareholders. |
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| An expatriate company is a United States based company that
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| has moved in name and on paper only to a tax haven country and |
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| has no
substantial business activities in the country of |
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| reincorporation. |
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| When a company expatriates, its shareholders are generally
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| left without the opportunity to pursue derivative lawsuits and
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| without the ability to enforce legal judgments against the |
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| company
under the United States and Illinois securities laws. |
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| Therefore,
matters relating to standard fiduciary duties of |
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| officers and
directors of the corporation may be less dutifully |
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| monitored or
controlled. |
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| Further, the shareholders of expatriate companies stand to
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| lose their rights to submit a shareholder proposal, inspect or |
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| obtain
copies of the company's corporate records, or approve a |
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| sale, lease,
or exchange of all or substantially all of the |
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| corporation's assets. |
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| In some cases, an expatriate company may significantly |
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| limit
shareholder voting rights or dissenting shareholders' |
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| appraisal
rights. |
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| This diminution of shareholder rights is the result of the
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| corporate practice, known as "corporate expatriation", that is |
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SB2413 |
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LRB093 19121 JAM 44856 b |
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| part
of a larger pattern of deceptive corporate practices and |
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| accounting
manipulation that continues to undermine the faith |
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| and confidence of
investors in the integrity of the financial |
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| markets. |
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| The State of Illinois and many of its residents are |
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| invested
in various corporations, mutual funds, and pension |
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| plans. |
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| The State's investments and pension funds depend on |
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| investor
faith and confidence in the transparency, fairness, |
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| and integrity of
the markets. |
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| A corporate reincorporation greatly impedes the State and |
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| the
State's pension funds in safeguarding shareholder rights |
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| and the
State's financial interests. |
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| Further, substandard corporate governance models and
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| accounting practices of an expatriate corporation may impede |
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| its
ability to do business with the State in a manner required |
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| by State
law and sound public contracting practices. At the |
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| same time, the
State's ability to enforce its contract rights |
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| or enforce judgments
against the expatriate corporation may be |
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| limited as the result of
corporate expatriation. |
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| Further, an expatriate corporation, by avoiding its fair |
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| share
of taxes, gains an unfair advantage over corporations |
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| that do not
expatriate when competing for State contracts and |
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| thereby
undermines the competitive State bidding process. |
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| It is, therefore, in the best interests of the State to
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| restore faith in corporate practices and in the State's |
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| financial
system by safeguarding the rights of shareholders, |
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| protecting the
State's pension funds and other State |
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| investments, ensuring a fair
business climate, and |
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| guaranteeing that similarly situated companies
doing business |
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| in the State pay their fair share of taxes.
Furthermore, the |
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| preservation of State control over matters relating
to |
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| procurement and expenditure of its revenues, a vital and valid
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| public purpose, is served by prohibiting the State from doing
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| business with publicly held expatriate companies. |
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| Accordingly, it is the intent of the General Assembly that, |
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LRB093 19121 JAM 44856 b |
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| absent
a compelling public interest, the State not enter into |
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| any agreement
or contract with any publicly held expatriate |
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| corporation. |
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| Section 10. Definitions. As used in this Act: |
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| "Expatriate corporation"
means a foreign incorporated |
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| entity that is publicly traded in the
United States to which |
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| all of the following apply: |
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| (1) The United States is the principal market for the |
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| public
trading of the foreign incorporated entity. |
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| (2) The foreign incorporated entity has no substantial |
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| business
activities in the place of incorporation. |
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| (3) Either paragraph (i) or (ii) applies: |
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| (i) The foreign entity was established in |
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| connection with a
transaction or series of related |
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| transactions pursuant to which (A)
the foreign entity |
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| directly or indirectly acquired substantially all
of |
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| the properties held by a domestic corporation or all of |
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| the
properties constituting a trade or business of a |
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| domestic partnership
or related foreign partnership |
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| and (B) immediately after the
acquisition, more than |
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| 50% of the publicly traded stock, by
vote or value, of |
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| the foreign entity is held by former shareholders
of |
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| the domestic corporation or by former partners of the |
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| domestic
partnership or related foreign partnership. |
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| For purposes of
item (B), any stock sold in a public |
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| offering related to the
transaction or a series of |
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| transactions is disregarded.
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| (ii) The foreign entity was established in |
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| connection with a
transaction or series of related |
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| transactions pursuant to which (A)
the foreign entity |
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| directly or indirectly acquired substantially all
of |
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| the properties held by a domestic corporation or all of |
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| the
properties constituting a trade or business of a |
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| domestic partnership
or related foreign partnership |
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| and (B) the acquiring foreign
entity is more than 50% |
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| owned, by vote or value, by domestic
shareholders or |
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| partners. |
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| For purposes of paragraphs (i) and (ii), indirect |
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| acquisition of
property includes the acquisition of a |
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| stock share, or any portion
thereof, of the owner of |
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| that property. |
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| "State agency" means every office, department, division, |
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| authority, board, and commission of the executive branch of |
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| State government but does not include the General Assembly, any |
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| agency of the legislative branch, the courts, or any agency in |
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| the judicial branch. |
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| Section 15. Prohibited contracts. Except as provided in |
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| Sections 20 and 25, a State agency may not enter into any |
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| contract with an expatriate corporation or its subsidiaries. |
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| Section 20. Exemption. Notwithstanding Section 15, a State |
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| agency may contract
with an expatriate corporation, or its |
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| subsidiary, if it was an
expatriate corporation before January |
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| 1, 2005, to which both of the
following apply: |
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| (1) The foreign entity provides, by operation of law, |
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| by
provisions of its governing documents, by resolution of |
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| its board of
directors, or in any other manner, at least |
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| the following
shareholders' rights: |
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| (i) Shareholders of the entity have the right to |
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| inspect, at a
principal place of business in the United |
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| States, copies of the
entity's books and records, |
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| including, but not limited to,
shareholder names, |
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| addresses, and shareholdings, in accordance with
the |
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| corporation law of the United States jurisdiction in |
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| which
the entity was previously incorporated or, if the |
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| entity was not
previously incorporated, in accordance |
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| with Illinois law, provided that, if the corporate law |
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| of the United
States jurisdiction in which the entity |
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| was previously incorporated
or Illinois law does not |
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| provide access to the
shareholder names, addresses, |
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LRB093 19121 JAM 44856 b |
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| and shareholdings, these books and
records are |
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| available for inspection by shareholders for purposes
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| properly related to their status as shareholders of the |
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| entity. |
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| (ii) The entity permits its shareholders to bring |
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| derivative
proceedings on behalf of the entity, |
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| provided that these derivative
proceedings are brought |
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| on a basis of and under the terms applicable
under the |
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| law of the United States jurisdiction in which
the |
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| entity was previously incorporated or, if the entity |
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| was not
previously incorporated, on a basis of and |
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| under the terms set forth in
Illinois law. |
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| (iii) Entity transactions in which any director is |
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| interested are
approved in accordance with the |
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| applicable law of the United States
jurisdiction in |
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| which the entity was previously incorporated or, if
the |
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| entity was not previously incorporated, in accordance |
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| with Illinois law. |
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| (iv) The entity has consented to the jurisdiction, |
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| for any
otherwise available cause of action by or on |
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| behalf of the entity's
shareholders, including any |
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| pendent State causes of action, of all of
the following |
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| courts: |
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| (A) The state courts of one or more states. |
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| (B) The United States federal courts in any |
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| state in which the
entity consents to the |
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| jurisdiction of that state's courts pursuant
to |
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| item (A). |
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| (v) The entity has appointed an agent for service |
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| of process in
the state or states in which the entity |
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| has consented to
jurisdiction, as described in |
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| paragraph (iv), and the entity meets at
least one of |
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| the following conditions:
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| (A) The entity has unencumbered assets in the |
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| United States, which
may include equity or debt |
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| investments in United States
companies, with a |
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| book value in excess of $50,000,000, and the entity |
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| delivers to the Secretary of State an
opinion of an |
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| attorney licensed in the United States that |
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| judgments
rendered against the entity may be |
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| satisfied by using these assets.
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| (B) The entity posts a bond or similar security |
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| in an amount of
at least $50,000,000. |
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| (C) The entity has directors' and officers' |
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| insurance in an
amount of at least $50,000,000. |
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| (vi) The entity agrees that, in connection with any |
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| lawsuit
brought against it by its shareholders in any |
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| court in which the
entity has consented to jurisdiction |
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| as described in paragraph (iv), the
entity will provide |
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| to the court notice of the manner in which the
entity |
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| complied with paragraph (v) and, if the entity complied |
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| with that
paragraph in the manner specified in item (A) |
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| of paragraph (v), a
copy of the opinion described in |
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| that item. |
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| (vii) Shareholder approval is required for any |
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| sale of all or
substantially all of the entity's assets |
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| in accordance with the law
of the United States |
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| jurisdiction in which it was previously
incorporated |
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| or, if it was not previously incorporated, in
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| accordance with Illinois law. |
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| (viii) The directors and officers of the entity |
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| occupy a fiduciary
relationship with the entity and its |
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| shareholders and these
directors and officers, in |
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| performing their duties, act in good faith
in a manner |
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| that a director or officer believes to be in the best
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| interests of the entity and its shareholders, as that |
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| standard of
care is interpreted by the courts. |
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| (ix) The entity agrees to hold no more than one of |
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| every 4
annual shareholder meetings in a location |
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| outside the United States
and, in the event that the |
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| entity holds an annual meeting outside the
United |
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| States, the entity agrees to provide access to that |
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| meeting
through a Web cast or other technology that |
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| allows the entity's
shareholders to do both of the |
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| following: |
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| (A) Listen to the meeting, watch the meeting, |
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| or both. |
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| (B) Send questions that will be addressed at |
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| the meeting. |
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| (x) The entity provides a description of the |
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| shareholder rights
described in paragraphs (i) to |
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| (ix), inclusive, and any subsequent
changes to these |
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| rights, on the entity's Web site or in its 10K
filings |
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| with the United States Securities and Exchange |
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| Commission. |
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| (2) The entity uses worldwide combined reporting to |
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| calculate the
income on which it pays taxes to the State. |
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| Section 25. Waiver. The chief executive officer of a State |
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| agency or his or her
designee may waive the prohibition |
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| specified in Section 15 if
the executive officer or his or her |
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| designee has made a written
finding that the contract is |
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| necessary to meet a compelling public
interest. For purposes of |
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| this Section, a "compelling public
interest" includes, but is |
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| not limited to, ensuring the provision of
essential services, |
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| ensuring the public health and safety, or an
emergency. If a |
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| waiver is granted to a
vendor pursuant to this Section, the |
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| requirement to submit a
declaration of compliance, as set forth |
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| in Section 30, does not apply to that vendor. |
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| Section 30. Vendor declaration; penalty. On and after |
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| January 1, 2005, all State agencies shall, as a
condition of a |
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| contract, require any vendor that is offered a
contract to do |
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| business with the State to submit a declaration
stating that |
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| the vendor is eligible to contract with the State
pursuant to |
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| this Act. |
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| A vendor who declares as true any material matter in a
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| declaration described in this Section that he or she knows to |