N.Y. Business Corporation Law § 505: Rights and options to purchase shares; issue of rights and options to directors, officers and employees

§ 505. Rights and options to purchase shares; issue of rights and

options to directors, officers and employees.

(a) (1) Except as otherwise provided in this section or in the

certificate of incorporation, a corporation may create and issue,

whether or not in connection with the issue and sale of any of its

shares or bonds, rights or options entitling the holders thereof to

purchase from the corporation, upon such consideration, terms and

conditions as may be fixed by the board, shares of any class or series,

whether authorized but unissued shares, treasury shares or shares to be

purchased or acquired or assets of the corporation.

(2) (i) In the case of a domestic corporation that has a class of

voting stock registered with the Securities and Exchange Commission

pursuant to section twelve of the Exchange Act, the terms and conditions

of such rights or options may include, without limitation, restrictions

or conditions that preclude or limit the exercise, transfer or receipt

of such rights or options by an interested shareholder or any transferee

of any such interested shareholder or that invalidate or void such

rights or options held by any such interested shareholder or any such

transferee. For the purpose of this subparagraph, the terms "voting

stock", "Exchange Act" and "interested shareholder" shall have the same

meanings as set forth in section nine hundred twelve of this chapter;

(ii) Determinations of the board of directors whether to impose,

enforce or waive or otherwise render ineffective such limitations or

conditions as are permitted by clause (i) of this subparagraph shall be

subject to judicial review in an appropriate proceeding in which the

courts formulate or apply appropriate standards in order to insure that

such limitations or conditions are imposed, enforced or waived in the

best long-term interests and short-term interests of the corporation and

its shareholders considering, without limitation, the prospects for

potential growth, development, productivity and profitability of the

corporation.

(b) The consideration for shares to be purchased under any such right

or option shall comply with the requirements of section 504

(Consideration and payment for shares).

(c) The terms and conditions of such rights or options, including the

time or times at or within which and the price or prices at which they

may be exercised and any limitations upon transferability, shall be set

forth or incorporated by reference in the instrument or instruments

evidencing such rights or options.

(d) The issue of such rights or options to one or more directors,

officers or employees of the corporation or a subsidiary or affiliate

thereof, as an incentive to service or continued service with the

corporation, a subsidiary or affiliate thereof, or to a trustee on

behalf of such directors, officers or employees, shall be authorized as

required by the policies of all stock exchanges or automated quotation

systems on which the corporation's shares are listed or authorized for

trading, or if the corporation's shares are not so listed or authorized,

by a majority of the votes cast at a meeting of shareholders by the

holders of shares entitled to vote thereon, or authorized by and

consistent with a plan adopted by such vote of shareholders. If, under

the certificate of incorporation, there are preemptive rights to any of

the shares to be thus subject to rights or options to purchase, either

such issue or such plan, if any shall also be approved by the vote or

written consent of the holders of a majority of the shares entitled to

exercise preemptive rights with respect to such shares and such vote or

written consent shall operate to release the preemptive rights with

respect thereto of the holders of all the shares that were entitled to

exercise such preemptive rights.

In the absence of preemptive rights, nothing in this paragraph shall

require shareholder approval for the issuance of rights or options to

purchase shares of the corporation in substitution for, or upon the

assumption of, rights or options issued by another corporation, if such

substitution or assumption is in connection with such other

corporation's merger or consolidation with, or the acquisition of its

shares or all or part of its assets by, the corporation or its

subsidiary.

(e) A plan adopted by the shareholders for the issue of rights or

options to directors, officers or employees shall include the material

terms and conditions upon which such rights or options are to be issued,

such as, but without limitation thereof, any restrictions on the number

of shares that eligible individuals may have the right or option to

purchase, the method of administering the plan, the terms and conditions

of payment for shares in full or in installments, the issue of

certificates for shares to be paid for in installments, any limitations

upon the transferability of such shares and the voting and dividend

rights to which the holders of such shares may be entitled, though the

full amount of the consideration therefor has not been paid; provided

that under this section no certificate for shares shall be delivered to

a shareholder, prior to full payment therefor, unless the fact that the

shares are partly paid is noted conspicuously on the face or back of

such certificate.

(f) If there is shareholder approval for the issue of rights or

options to individual directors, officers or employees, but not under an

approved plan under paragraph (e), the terms and conditions of issue set

forth in paragraph (e) shall be permissible except that the grantees of

such rights or options shall not be granted voting or dividend rights

until the consideration for the shares to which they are entitled under

such rights or options has been fully paid.

(g) If there is shareholder approval for the issue of rights and

options, such approval may provide that the board is authorized by

certificate of amendment under section 805 (Certificate of amendment;

contents) to increase the authorized shares of any class or series to

such number as will be sufficient, when added to the previously

authorized but unissued shares of such class or series, to satisfy any

such rights or options entitling the holders thereof to purchase from

the corporation authorized but unissued shares of such class or series.

(h) In the absence of fraud in the transaction, the judgment of the

board shall be conclusive as to the adequacy of the consideration,

tangible or intangible, received or to be received by the corporation

for the issue of rights or options for the purchase from the corporation

of its shares.

(i) The provisions of this section are inapplicable to the rights of

the holders of convertible shares or bonds to acquire shares upon the

exercise of conversion privileges under section 519 (Convertible shares

and bonds).