N.Y. BSC Law § 505 — New York Code / Act BSC / Article 5 / Section 505
Rights and options to purchase shares; issue of rights and options to directors, officers and employees
Status: in_force

§ 505. Rights and options to purchase shares; issue of rights and\n         options to directors, officers and employees.\n  (a) (1) Except as otherwise provided in this section or in the\ncertificate of incorporation, a corporation may create and issue,\nwhether or not in connection with the issue and sale of any of its\nshares or bonds, rights or options entitling the holders thereof to\npurchase from the corporation, upon such consideration, terms and\nconditions as may be fixed by the board, shares of any class or series,\nwhether authorized but unissued shares, treasury shares or shares to be\npurchased or acquired or assets of the corporation.\n  (2) (i) In the case of a domestic corporation that has a class of\nvoting stock registered with the Securities and Exchange Commission\npursuant to section twelve of the Exchange Act, the terms and conditions\nof such rights or options may include, without limitation, restrictions\nor conditions that preclude or limit the exercise, transfer or receipt\nof such rights or options by an interested shareholder or any transferee\nof any such interested shareholder or that invalidate or void such\nrights or options held by any such interested shareholder or any such\ntransferee. For the purpose of this subparagraph, the terms "voting\nstock", "Exchange Act" and "interested shareholder" shall have the same\nmeanings as set forth in section nine hundred twelve of this chapter;\n  (ii) Determinations of the board of directors whether to impose,\nenforce or waive or otherwise render ineffective such limitations or\nconditions as are permitted by clause (i) of this subparagraph shall be\nsubject to judicial review in an appropriate proceeding in which the\ncourts formulate or apply appropriate standards in order to insure that\nsuch limitations or conditions are imposed, enforced or waived in the\nbest long-term interests and short-term interests of the corporation and\nits shareholders considering, without limitation, the prospects for\npotential growth, development, productivity and profitability of the\ncorporation.\n  (b) The consideration for shares to be purchased under any such right\nor option shall comply with the requirements of section 504\n(Consideration and payment for shares).\n  (c) The terms and conditions of such rights or options, including the\ntime or times at or within which and the price or prices at which they\nmay be exercised and any limitations upon transferability, shall be set\nforth or incorporated by reference in the instrument or instruments\nevidencing such rights or options.\n  (d) The issue of such rights or options to one or more directors,\nofficers or employees of the corporation or a subsidiary or affiliate\nthereof, as an incentive to service or continued service with the\ncorporation, a subsidiary or affiliate thereof, or to a trustee on\nbehalf of such directors, officers or employees, shall be authorized as\nrequired by the policies of all stock exchanges or automated quotation\nsystems on which the corporation's shares are listed or authorized for\ntrading, or if the corporation's shares are not so listed or authorized,\nby a majority of the votes cast at a meeting of shareholders by the\nholders of shares entitled to vote thereon, or authorized by and\nconsistent with a plan adopted by such vote of shareholders. If, under\nthe certificate of incorporation, there are preemptive rights to any of\nthe shares to be thus subject to rights or options to purchase, either\nsuch issue or such plan, if any shall also be approved by the vote or\nwritten consent of the holders of a majority of the shares entitled to\nexercise preemptive rights with respect to such shares and such vote or\nwritten consent shall operate to release the preemptive rights with\nrespect thereto of the holders of all the shares that were entitled to\nexercise such preemptive rights.\n  In the absence of preemptive rights, nothing in this paragraph shall\nrequire shareholder approval for the issuance of rights or options to\npurchase shares of the corporation in substitution for, or upon the\nassumption of, rights or options issued by another corporation, if such\nsubstitution or assumption is in connection with such other\ncorporation's merger or consolidation with, or the acquisition of its\nshares or all or part of its assets by, the corporation or its\nsubsidiary.\n  (e) A plan adopted by the shareholders for the issue of rights or\noptions to directors, officers or employees shall include the material\nterms and conditions upon which such rights or options are to be issued,\nsuch as, but without limitation thereof, any restrictions on the number\nof shares that eligible individuals may have the right or option to\npurchase, the method of administering the plan, the terms and conditions\nof payment for shares in full or in installments, the issue of\ncertificates for shares to be paid for in installments, any limitations\nupon the transferability of such shares and the voting and dividend\nrights to which the holders of such shares may be entitled, though the\nfull amount of the consideration therefor has not been paid; provided\nthat under this section no certificate for shares shall be delivered to\na shareholder, prior to full payment therefor, unless the fact that the\nshares are partly paid is noted conspicuously on the face or back of\nsuch certificate.\n  (f) If there is shareholder approval for the issue of rights or\noptions to individual directors, officers or employees, but not under an\napproved plan under paragraph (e), the terms and conditions of issue set\nforth in paragraph (e) shall be permissible except that the grantees of\nsuch rights or options shall not be granted voting or dividend rights\nuntil the consideration for the shares to which they are entitled under\nsuch rights or options has been fully paid.\n  (g) If there is shareholder approval for the issue of rights and\noptions, such approval may provide that the board is authorized by\ncertificate of amendment under section 805 (Certificate of amendment;\ncontents) to increase the authorized shares of any class or series to\nsuch number as will be sufficient, when added to the previously\nauthorized but unissued shares of such class or series, to satisfy any\nsuch rights or options entitling the holders thereof to purchase from\nthe corporation authorized but unissued shares of such class or series.\n  (h) In the absence of fraud in the transaction, the judgment of the\nboard shall be conclusive as to the adequacy of the consideration,\ntangible or intangible, received or to be received by the corporation\nfor the issue of rights or options for the purchase from the corporation\nof its shares.\n  (i) The provisions of this section are inapplicable to the rights of\nthe holders of convertible shares or bonds to acquire shares upon the\nexercise of conversion privileges under section 519 (Convertible shares\nand bonds).\n