TITLE 14 CORPORATIONS, PARTNERSHIPS, AND ASSOCIATIONS

Section 2. Business Corporations, 14-2-101 through 14-2-1703.

ARTICLE 11 MERGER AND SHARE EXCHANGE

14-2-1110. Definitions.

As used in this part, the term:

"Affiliate" means a person that directly, or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a specified person.
"Announcement date" means the date of the first general public announcement of the proposal of the business combination.
"Associate," when used to indicate a relationship with any person, means:
1. Any corporation or organization, other than the corporation or a subsidiary of the corporation, of which such person is an officer, director, or partner or is the beneficial owner of 10 percent or more of any class of equity securities;
2. Any trust or other estate in which such person has a beneficial interest of 10 percent or more or as to which such person serves as trustee or in a similar fiduciary capacity; and
3. Any relative or spouse of such person, or any relative of such spouse, who has the same home as such person.
"Beneficial owner" means a person shall be considered to be the beneficial owner of any equity securities:
1. Which such person or any of such person's affiliates or associates owns, directly or indirectly;
2. Which such person or any of such person's affiliates or associates, directly or indirectly, has:
  1. The right to acquire, whether such right is exercisable immediately or only after the passage of time, pursuant to any agreement, arrangement, or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise; or
  2. The right to vote pursuant to any agreement, arrangement, or understanding; or
3. Which are owned, directly or indirectly, by any other person with which such person or any of such person's affiliates or associates has any agreement, arrangement, or understanding for the purpose of acquiring, holding, voting, or disposing of equity securities; provided, however, that a person shall not be considered to be a beneficial owner of any equity securities which (i) have been tendered pursuant to a tender or exchange offer made by such person or such person's affiliates or associates until such tendered stock is accepted for purchase or exchange or (ii) such person or such person's affiliates or associates have the right to vote pursuant to any agreement, arrangement, or understanding if the agreement, arrangement, or understanding to vote such stock arises solely from a revocable proxy or consent given in response to a proxy or consent solicitation made to ten or more persons.
"Business combination" means:
1. Any merger of the corporation or any subsidiary with:
  1. Any interested shareholder; or
  2. Any other corporation, whether or not itself an interested shareholder, which is, or after the merger would be, an affiliate of an interested shareholder that was an interested shareholder prior to the consummation of the transaction;
2. Any share exchange with (i) any interested shareholder or (ii) any other corporation, whether or not itself an interested shareholder, which is, or after the share exchange would be, an affiliate of an interested shareholder that was an interested shareholder prior to the consummation of the transaction;
3. Any sale, lease, transfer, or other disposition, other than in the ordinary course of business, in one transaction or in a series of transactions in any 12 month period, to any interested shareholder or any affiliate of any interested shareholder, other than the corporation or any of its subsidiaries, of any assets of the corporation or any subsidiary having, measured at the time the transaction or transactions are approved by the board of directors of the corporation, an aggregate book value as of the end of the corporation's most recently ended fiscal quarter of 10 percent or more of the net assets of the corporation as of the end of such fiscal quarter;
4. The issuance or transfer by the corporation, or any subsidiary, in one transaction or a series of transactions in any 12 month period, of any equity securities of the corporation or any subsidiary which have an aggregate market value of 5 percent or more of the total market value of the outstanding common and preferred shares of the corporation whose shares are being issued to any interested shareholder or any affiliate of any interested shareholder, other than the corporation or any of its subsidiaries, except pursuant to the exercise of warrants or rights to purchase securities offered pro rata to all holders of the corporation's voting shares or any other method affording substantially proportionate treatment to the holders of voting shares;
5. The adoption of any plan or proposal for the liquidation or dissolution of the corporation in which anything other than cash will be received by an interested shareholder or any affiliate of any interested shareholder; or
6. Any reclassification of securities, including any reverse stock split, or recapitalization of the corporation, or any merger of the corporation with any of its subsidiaries, or any share exchange with any of its subsidiaries, which has the effect, directly or indirectly, in one transaction or a series of transactions in any 12 month period, of increasing by 5 percent or more the proportionate amount of the outstanding shares of any class or series of equity securities of the corporation or any subsidiary which is directly or indirectly beneficially owned by any interested shareholder or any affiliate of any interested shareholder.
"Continuing director" means any member of the board of directors who is not an affiliate or associate of an interested shareholder or any of its affiliates, other than the corporation or any of its subsidiaries, and who was a director of the corporation prior to the determination date, and any successor to such continuing director who is not an affiliate or an associate of an interested shareholder or any of its affiliates, other than the corporation or its subsidiaries, and is recommended or elected by a majority of all of the continuing directors.
"Control," including the terms "controlling," "controlled by," and "under common control with," means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise, and the beneficial ownership of shares representing 10 percent or more of the votes entitled to be cast by a corporation's voting shares shall create an irrebuttable presumption of control.
"Corporation," in addition to the definition contained in Code Section 14-2-140, shall include any trust merging with a domestic corporation pursuant to Code Section 53-12-159.
"Determination date" means the date on which an interested shareholder first became an interested shareholder.
"Fair market value" means:
1. In the case of securities, the highest closing sale price, during the period beginning with and including the determination date and for 29 days prior to such date, of such a security on the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such securities are listed, or, if such securities are not listed on any such exchange, the highest closing sales price or, if none is available, the average of the highest bid and asked prices reported with respect to such a security, in each case during the 30 day period referred to above, on the National Association of Securities Dealers, Inc., Automatic Quotation System, or any system then in use, or, if no such quotations are available, the fair market value on the date in question of such a security as determined in good faith at a duly called meeting of the board of directors by a majority of all of the continuing directors, or, if there are no continuing directors, by the entire board of directors; and
2. In the case of property other than securities, the fair market value of such property on the date in question as determined in good faith at a duly called meeting of the board of directors by a majority of all of the continuing directors, or, if there are no continuing directors, by the entire board of directors of the corporation.
"Interested shareholder" means any person, other than the corporation or its subsidiaries, that:
1. Is the beneficial owner of 10 percent or more of the voting power of the outstanding voting shares of the corporation; or
2. Is an affiliate of the corporation and, at any time within the two-year period immediately prior to the date in question, was the beneficial owner of 10 percent or more of the voting power of the then outstanding voting shares of the corporation.
  For the purpose of determining whether a person is an interested shareholder, the number of voting shares deemed to be outstanding shall not include any unissued voting shares which may be issuable pursuant to any agreement, arrangement, or understanding, or upon exercise of conversion rights, warrants, or options, or otherwise.
"Net assets" means the amount by which the total assets of a corporation exceed the total debts of the corporation.
"Voting shares" means shares entitled to vote generally in the election of directors.

(Code 1981, §14-2-1110, enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 1989, p. 946, § 52; Ga. L. 1999, p. 405, § 9; Ga. L. 2010, p. 579, § 9/SB 131.)

COMMENT

Source: Former Section 14-2-232.

This part preserves the voting rules and fair price requirements concerning business combinations with interested shareholders. These provisions were adopted by Ga. L. 1985, p. 527, § 1. While they have no counterpart in the Model Act, they were modeled after legislation adopted in the States of Connecticut (Conn. Gen. Stat. § 33-366 (1984)), Kentucky (Ky. Rev. Stat. §§ 271A.396 et seq. (1984)), Louisiana (La. Rev. Stat. Ann. §§ 12:132 et seq. (1984)), Maryland (Md. Corps. & Assns. § 3-601 et seq. (1983)), Michigan (Mich. Stat. Ann. §§ 21.200 (775) et seq. (1984)) and Wisconsin (Wis. Stat. § 180.725 (1983).

Part 2 is designed to protect shareholders of Georgia corporations against the inequities of certain tactics which have been utilized in hostile takeover attempts. In so-called two-tier transactions, the acquiring party usually tenders in cash at a substantial premium for a major stock interest in the target corporation. After acquiring this initial interest in the corporation, the acquiring party may acquire total ownership of the corporation by effecting a so-called freezeout merger which forces minority shareholders to receive cash or other consideration for their common stock in the acquired corporation. The result is that minority shareholders who do not participate in the initial tender may receive a lower price or less desirable form of consideration than was received by shareholders who tendered. These sections are designed to discourage transactions of this type and to encourage negotiated acquisitions in which all shareholders will be more likely to receive equal treatment.

In order to assure that shareholders who do not tender in the initial offer are treated fairly, these sections impose certain requirements (in addition to those contained in this Code) on "business combinations" (e.g., mergers, share exchanges, sales of assets, liquidations, issuance of securities) of a Georgia corporation with any person who is an "interested shareholder" of that corporation (generally, the beneficial owner of 10% or more of the corporation's voting shares).

Under Sections 14-2-1111 and 14-2-1112, business combinations with interested shareholders must meet one of three criteria designed to protect the minority shareholders: (a) the transaction must be unanimously approved by the "continuing directors" of the corporation (generally, directors who served prior to the time the interested shareholder acquired 10% ownership and who are unaffiliated with the interested shareholder (Section 14-2-1111(a)(1)); OR (b) the transaction must be approved by two-thirds of the continuing directors and a majority of shares held by shareholders other than the interested shareholder (Section 14-2-1111(a)(2)) OR (c) the terms of the transaction must meet specified fair pricing criteria and certain other tests which are intended to assure that all shareholders receive a fair price and equivalent consideration for their shares regardless at what point in time they sell to the acquiring party (Section 14-2-1112).

The most significant variance of Part 2 from similar legislation in other states is that the applicability of these sections is optional; they do not apply to any Georgia corporation unless the corporation amends its bylaws to make these sections applicable to it (Section 14-2-1113).

The definitions set forth in Section14-2-1110 apply only to this part. For example, the definition of "beneficial owner" in this part differs from that found in § 14-2-723, which provides for recognition of beneficial owners if the corporation provides a procedure for recognizing them. There is no definition of "beneficial owner" in either § 14-2-723 or in the general definition section, § 14-2-140.

Subparagraphs (1), (3) and (4), which define "affiliate," "associate," and "beneficial owner," respectively, result in an extremely broad scope for the term "interested shareholder," and assure that an interested shareholder is not able to circumvent the applicability of this part by use of various corporate structures. Persons with the relationships described in subparagraph (3) with the corporation which is a party to a business combination with an interested shareholder are covered, while those with "the corporation" are not covered. "The corporation," as used in subparagraphs (3)(A), (5)(D), (6) and Section 14-2-1111 refers to the corporation which is engaged in a business combination with an interested shareholder.

Subparagraph (5) defines "business combination" and is intended to include any type of corporate transaction in which minority shareholders might be required to surrender their common or preferred stock in the corporation in exchange for some other type of consideration. Subparagraph (5)(A) was amended to delete references in § 14-2-232(5)(A) to "consolidations," since this concept has been removed from the Code. Subparagraph (5)(B) was added to reflect the introduction of the concept of share exchanges by corporate action. Similar conforming changes were made elsewhere.

Because of the elimination of legal capital concepts, the reference to "net assets" in subparagraph (5)(C) required the addition of a definition, which was drawn from former § 14-2-2.

Subparagraph (6) defines "continuing director." This definition is adopted from Ky. Rev. Stat. § 271A.396(6); the concept of the continuing director is not included in the statutes adopted by Connecticut, Louisiana, Maryland, Michigan or Wisconsin.

Note to 1999 Amendment The 1999 amendment eliminates an inconsistency in the Business Corporations Code regarding the definition of "beneficial owner" to exclude from the definition a person who holds shares tendered in a tender or exchange offer which have not been accepted for purchase or exchange, and to exclude a person who holds shares that are the subject of a revocable proxy given in response to a proxy or consent solicitation to ten or more persons. This makes the definition in § 14-2-1110 consistent with the definition of "beneficial owner" previously contained in § 14-2-1131(1).

Cross-References Business combinations, see Article 11A. Definitions generally, see § 14-2-140. Issuance of shares, see § 14-2-620 et seq. Liquidation, see § 14-2-1401 et seq. Mergers, see Article 11. Recapitalization, see § 14-2-1004. Reclassification, see § 14-2-1004. Sales of assets, see Article 12. Share exchanges, see Article 11. Voting shares, see § 14-2-721.

JUDICIAL DECISIONS

Cited in Shoffner v. Woodward, 195 Ga. App. 778, 394 S.E.2d 921 (1990).

RESEARCH REFERENCES

ALR.

- Valuation of stock of dissenting stockholders in case of consolidation or merger of corporation, sale of its assets, or the like, 48 A.L.R.3d 430.

Valuation of stock of dissenting stockholders in case of consolidation or merger of corporation, sale of its assets, or the like - equitable remedy of quasi-appraisal, 17 A.L.R.7th 6.

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