N.Y. Business Corporation Law § 623: Procedure to enforce shareholder's right to receive payment for shares

§ 623. Procedure to enforce shareholder's right to receive payment for

shares.

(a) A shareholder intending to enforce his right under a section of

this chapter to receive payment for his shares if the proposed corporate

action referred to therein is taken shall file with the corporation,

before the meeting of shareholders at which the action is submitted to a

vote, or at such meeting but before the vote, written objection to the

action. The objection shall include a notice of his election to dissent,

his name and residence address, the number and classes of shares as to

which he dissents and a demand for payment of the fair value of his

shares if the action is taken. Such objection is not required from any

shareholder to whom the corporation did not give notice of such meeting

in accordance with this chapter or where the proposed action is

authorized by written consent of shareholders without a meeting.

(b) Within ten days after the shareholders' authorization date, which

term as used in this section means the date on which the shareholders'

vote authorizing such action was taken, or the date on which such

consent without a meeting was obtained from the requisite shareholders,

the corporation shall give written notice of such authorization or

consent by registered mail to each shareholder who filed written

objection or from whom written objection was not required, excepting any

shareholder who voted for or consented in writing to the proposed action

and who thereby is deemed to have elected not to enforce his right to

receive payment for his shares.

(c) Within twenty days after the giving of notice to him, any

shareholder from whom written objection was not required and who elects

to dissent shall file with the corporation a written notice of such

election, stating his name and residence address, the number and classes

of shares as to which he dissents and a demand for payment of the fair

value of his shares. Any shareholder who elects to dissent from a merger

under section 905 (Merger of subsidiary corporation) or paragraph (c) of

section 907 (Merger or consolidation of domestic and foreign

corporations) or from a share exchange under paragraph (g) of section

913 (Share exchanges) shall file a written notice of such election to

dissent within twenty days after the giving to him of a copy of the plan

of merger or exchange or an outline of the material features thereof

under section 905 or 913.

(d) A shareholder may not dissent as to less than all of the shares,

as to which he has a right to dissent, held by him of record, that he

owns beneficially. A nominee or fiduciary may not dissent on behalf of

any beneficial owner as to less than all of the shares of such owner, as

to which such nominee or fiduciary has a right to dissent, held of

record by such nominee or fiduciary.

(e) Upon consummation of the corporate action, the shareholder shall

cease to have any of the rights of a shareholder except the right to be

paid the fair value of his shares and any other rights under this

section. A notice of election may be withdrawn by the shareholder at any

time prior to his acceptance in writing of an offer made by the

corporation, as provided in paragraph (g), but in no case later than

sixty days from the date of consummation of the corporate action except

that if the corporation fails to make a timely offer, as provided in

paragraph (g), the time for withdrawing a notice of election shall be

extended until sixty days from the date an offer is made. Upon

expiration of such time, withdrawal of a notice of election shall

require the written consent of the corporation. In order to be

effective, withdrawal of a notice of election must be accompanied by the

return to the corporation of any advance payment made to the shareholder

as provided in paragraph (g). If a notice of election is withdrawn, or

the corporate action is rescinded, or a court shall determine that the

shareholder is not entitled to receive payment for his shares, or the

shareholder shall otherwise lose his dissenters' rights, he shall not

have the right to receive payment for his shares and he shall be

reinstated to all his rights as a shareholder as of the consummation of

the corporate action, including any intervening preemptive rights and

the right to payment of any intervening dividend or other distribution

or, if any such rights have expired or any such dividend or distribution

other than in cash has been completed, in lieu thereof, at the election

of the corporation, the fair value thereof in cash as determined by the

board as of the time of such expiration or completion, but without

prejudice otherwise to any corporate proceedings that may have been

taken in the interim.

(f) At the time of filing the notice of election to dissent or within

one month thereafter the shareholder of shares represented by

certificates shall submit the certificates representing his shares to

the corporation, or to its transfer agent, which shall forthwith note

conspicuously thereon that a notice of election has been filed and shall

return the certificates to the shareholder or other person who submitted

them on his behalf. Any shareholder of shares represented by

certificates who fails to submit his certificates for such notation as

herein specified shall, at the option of the corporation exercised by

written notice to him within forty-five days from the date of filing of

such notice of election to dissent, lose his dissenter's rights unless a

court, for good cause shown, shall otherwise direct. Upon transfer of a

certificate bearing such notation, each new certificate issued therefor

shall bear a similar notation together with the name of the original

dissenting holder of the shares and a transferee shall acquire no rights

in the corporation except those which the original dissenting

shareholder had at the time of transfer.

(g) Within fifteen days after the expiration of the period within

which shareholders may file their notices of election to dissent, or

within fifteen days after the proposed corporate action is consummated,

whichever is later (but in no case later than ninety days from the

shareholders' authorization date), the corporation or, in the case of a

merger or consolidation, the surviving or new corporation, shall make a

written offer by registered mail to each shareholder who has filed such

notice of election to pay for his shares at a specified price which the

corporation considers to be their fair value. Such offer shall be

accompanied by a statement setting forth the aggregate number of shares

with respect to which notices of election to dissent have been received

and the aggregate number of holders of such shares. If the corporate

action has been consummated, such offer shall also be accompanied by (1)

advance payment to each such shareholder who has submitted the

certificates representing his shares to the corporation, as provided in

paragraph (f), of an amount equal to eighty percent of the amount of

such offer, or (2) as to each shareholder who has not yet submitted his

certificates a statement that advance payment to him of an amount equal

to eighty percent of the amount of such offer will be made by the

corporation promptly upon submission of his certificates. If the

corporate action has not been consummated at the time of the making of

the offer, such advance payment or statement as to advance payment shall

be sent to each shareholder entitled thereto forthwith upon consummation

of the corporate action. Every advance payment or statement as to

advance payment shall include advice to the shareholder to the effect

that acceptance of such payment does not constitute a waiver of any

dissenters' rights. If the corporate action has not been consummated

upon the expiration of the ninety day period after the shareholders'

authorization date, the offer may be conditioned upon the consummation

of such action. Such offer shall be made at the same price per share to

all dissenting shareholders of the same class, or if divided into

series, of the same series and shall be accompanied by a balance sheet

of the corporation whose shares the dissenting shareholder holds as of

the latest available date, which shall not be earlier than twelve months

before the making of such offer, and a profit and loss statement or

statements for not less than a twelve month period ended on the date of

such balance sheet or, if the corporation was not in existence

throughout such twelve month period, for the portion thereof during

which it was in existence. Notwithstanding the foregoing, the

corporation shall not be required to furnish a balance sheet or profit

and loss statement or statements to any shareholder to whom such balance

sheet or profit and loss statement or statements were previously

furnished, nor if in connection with obtaining the shareholders'

authorization for or consent to the proposed corporate action the

shareholders were furnished with a proxy or information statement, which

included financial statements, pursuant to Regulation 14A or Regulation

14C of the United States Securities and Exchange Commission. If within

thirty days after the making of such offer, the corporation making the

offer and any shareholder agree upon the price to be paid for his

shares, payment therefor shall be made within sixty days after the

making of such offer or the consummation of the proposed corporate

action, whichever is later, upon the surrender of the certificates for

any such shares represented by certificates.

(h) The following procedure shall apply if the corporation fails to

make such offer within such period of fifteen days, or if it makes the

offer and any dissenting shareholder or shareholders fail to agree with

it within the period of thirty days thereafter upon the price to be paid

for their shares:

(1) The corporation shall, within twenty days after the expiration of

whichever is applicable of the two periods last mentioned, institute a

special proceeding in the supreme court in the judicial district in

which the office of the corporation is located to determine the rights

of dissenting shareholders and to fix the fair value of their shares.

If, in the case of merger or consolidation, the surviving or new

corporation is a foreign corporation without an office in this state,

such proceeding shall be brought in the county where the office of the

domestic corporation, whose shares are to be valued, was located.

(2) If the corporation fails to institute such proceeding within such

period of twenty days, any dissenting shareholder may institute such

proceeding for the same purpose not later than thirty days after the

expiration of such twenty day period. If such proceeding is not

instituted within such thirty day period, all dissenter's rights shall

be lost unless the supreme court, for good cause shown, shall otherwise

direct.

(3) All dissenting shareholders, excepting those who, as provided in

paragraph (g), have agreed with the corporation upon the price to be

paid for their shares, shall be made parties to such proceeding, which

shall have the effect of an action quasi in rem against their shares.

The corporation shall serve a copy of the petition in such proceeding

upon each dissenting shareholder who is a resident of this state in the

manner provided by law for the service of a summons, and upon each

nonresident dissenting shareholder either by registered mail and

publication, or in such other manner as is permitted by law. The

jurisdiction of the court shall be plenary and exclusive.

(4) The court shall determine whether each dissenting shareholder, as

to whom the corporation requests the court to make such determination,

is entitled to receive payment for his shares. If the corporation does

not request any such determination or if the court finds that any

dissenting shareholder is so entitled, it shall proceed to fix the value

of the shares, which, for the purposes of this section, shall be the

fair value as of the close of business on the day prior to the

shareholders' authorization date. In fixing the fair value of the

shares, the court shall consider the nature of the transaction giving

rise to the shareholder's right to receive payment for shares and its

effects on the corporation and its shareholders, the concepts and

methods then customary in the relevant securities and financial markets

for determining fair value of shares of a corporation engaging in a

similar transaction under comparable circumstances and all other

relevant factors. The court shall determine the fair value of the shares

without a jury and without referral to an appraiser or referee. Upon

application by the corporation or by any shareholder who is a party to

the proceeding, the court may, in its discretion, permit pretrial

disclosure, including, but not limited to, disclosure of any expert's

reports relating to the fair value of the shares whether or not intended

for use at the trial in the proceeding and notwithstanding subdivision

(d) of section 3101 of the civil practice law and rules.

(5) The final order in the proceeding shall be entered against the

corporation in favor of each dissenting shareholder who is a party to

the proceeding and is entitled thereto for the value of his shares so

determined.

(6) The final order shall include an allowance for interest at such

rate as the court finds to be equitable, from the date the corporate

action was consummated to the date of payment. In determining the rate

of interest, the court shall consider all relevant factors, including

the rate of interest which the corporation would have had to pay to

borrow money during the pendency of the proceeding. If the court finds

that the refusal of any shareholder to accept the corporate offer of

payment for his shares was arbitrary, vexatious or otherwise not in good

faith, no interest shall be allowed to him.

(7) Each party to such proceeding shall bear its own costs and

expenses, including the fees and expenses of its counsel and of any

experts employed by it. Notwithstanding the foregoing, the court may, in

its discretion, apportion and assess all or any part of the costs,

expenses and fees incurred by the corporation against any or all of the

dissenting shareholders who are parties to the proceeding, including any

who have withdrawn their notices of election as provided in paragraph

(e), if the court finds that their refusal to accept the corporate offer

was arbitrary, vexatious or otherwise not in good faith. The court may,

in its discretion, apportion and assess all or any part of the costs,

expenses and fees incurred by any or all of the dissenting shareholders

who are parties to the proceeding against the corporation if the court

finds any of the following: (A) that the fair value of the shares as

determined materially exceeds the amount which the corporation offered

to pay; (B) that no offer or required advance payment was made by the

corporation; (C) that the corporation failed to institute the special

proceeding within the period specified therefor; or (D) that the action

of the corporation in complying with its obligations as provided in this

section was arbitrary, vexatious or otherwise not in good faith. In

making any determination as provided in clause (A), the court may

consider the dollar amount or the percentage, or both, by which the fair

value of the shares as determined exceeds the corporate offer.

(8) Within sixty days after final determination of the proceeding, the

corporation shall pay to each dissenting shareholder the amount found to

be due him, upon surrender of the certificates for any such shares

represented by certificates.

(i) Shares acquired by the corporation upon the payment of the agreed

value therefor or of the amount due under the final order, as provided

in this section, shall become treasury shares or be cancelled as

provided in section 515 (Reacquired shares), except that, in the case of

a merger or consolidation, they may be held and disposed of as the plan

of merger or consolidation may otherwise provide.

(j) No payment shall be made to a dissenting shareholder under this

section at a time when the corporation is insolvent or when such payment

would make it insolvent. In such event, the dissenting shareholder

shall, at his option:

(1) Withdraw his notice of election, which shall in such event be

deemed withdrawn with the written consent of the corporation; or

(2) Retain his status as a claimant against the corporation and, if it

is liquidated, be subordinated to the rights of creditors of the

corporation, but have rights superior to the non-dissenting

shareholders, and if it is not liquidated, retain his right to be paid

for his shares, which right the corporation shall be obliged to satisfy

when the restrictions of this paragraph do not apply.

(3) The dissenting shareholder shall exercise such option under

subparagraph (1) or (2) by written notice filed with the corporation

within thirty days after the corporation has given him written notice

that payment for his shares cannot be made because of the restrictions

of this paragraph. If the dissenting shareholder fails to exercise such

option as provided, the corporation shall exercise the option by written

notice given to him within twenty days after the expiration of such

period of thirty days.

(k) The enforcement by a shareholder of his right to receive payment

for his shares in the manner provided herein shall exclude the

enforcement by such shareholder of any other right to which he might

otherwise be entitled by virtue of share ownership, except as provided

in paragraph (e), and except that this section shall not exclude the

right of such shareholder to bring or maintain an appropriate action to

obtain relief on the ground that such corporate action will be or is

unlawful or fraudulent as to him.

(l) Except as otherwise expressly provided in this section, any notice

to be given by a corporation to a shareholder under this section shall

be given in the manner provided in section 605 (Notice of meetings of

shareholders).

(m) This section shall not apply to foreign corporations except as

provided in subparagraph (e) (2) of section 907 (Merger or consolidation

of domestic and foreign corporations).