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This entry was published on 2014-09-22
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Rights and options to purchase shares; issue of rights and options to directors, officers and employees
Business Corporation (BSC) CHAPTER 4, ARTICLE 5
§ 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

(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

(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).