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2018 Georgia Code 14-2-1132 | Car Wreck Lawyer

Link to State of Georgia Official Statute 2018 Georgia Code Annotated (sourced from legal.resource.org)
O.C.G.A. 14-2-1132 Case Law from Google Scholar Amendments to OCGA 14-2-1132

TITLE 14 CORPORATIONS, PARTNERSHIPS, AND ASSOCIATIONS

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

ARTICLE 11 MERGER AND SHARE EXCHANGE

14-2-1132. Business combinations with interested stockholders.

  1. Notwithstanding any other provision of this chapter (except for the provisions of subsection (b) of this Code section and Code Section 14-2-1133), a resident domestic corporation shall not engage in any business combination with any interested shareholder for a period of five years following the time that such shareholder became an interested shareholder, unless:
    1. Prior to such time the resident domestic corporation's board of directors approved either the business combination or the transaction which resulted in the shareholder becoming an interested shareholder;
    2. In the transaction which resulted in the shareholder becoming an interested shareholder, the interested shareholder became the beneficial owner of at least 90 percent of the voting stock of the resident domestic corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by: (A) persons who are directors or officers, their affiliates, or associates; (B) subsidiaries of the resident domestic corporation; and (C) any employee stock plan under which participants do not have the right (as determined exclusively by reference to the terms of such plan and any trust which is part of such plan) to determine confidentially the extent to which shares held under such plan will be tendered in a tender or exchange offer; or
    3. Subsequent to becoming an interested shareholder, such shareholder acquired additional shares resulting in the interested shareholder being the beneficial owner of at least 90 percent of the outstanding voting stock of the resident domestic corporation, excluding for purposes of determining the number of shares outstanding those shares owned by (A) persons who are directors or officers of the resident domestic corporation, their affiliates, or associates; (B) subsidiaries of the resident domestic corporation; and (C) any employee stock plan under which participants do not have the right (as determined exclusively by reference to the terms of such plan and any trust which is part of such plan) to determine confidentially the extent to which shares held under such plan will be tendered in a tender or exchange offer, and the business combination was approved at an annual or special meeting of shareholders by the holders of a majority of the voting stock entitled to vote thereon, excluding from said vote, for the purpose of this paragraph only, the voting stock beneficially owned by the interested shareholder or by (A) persons who are directors or officers of the resident domestic corporation, their affiliates, or associates; (B) subsidiaries of the resident domestic corporation; and (C) any employee stock plan under which participants do not have the right (as determined exclusively by reference to the terms of such plan and any trust which is part of such plan) to determine confidentially the extent to which shares held under such plan will be tendered in a tender or exchange offer.
  2. The restrictions contained in this Code section shall not apply if a shareholder: (1) becomes an interested shareholder inadvertently; (2) as soon as practicable divests sufficient shares so that the shareholder ceases to be an interested shareholder; and (3) would not, at any time within the five-year period immediately prior to a business combination between the resident domestic corporation and such shareholder, have been an interested shareholder but for the inadvertent acquisition.

(Code 1981, §14-2-1132, enacted by Ga. L. 1988, p. 158, § 2; Ga. L. 1989, p. 946, § 55; Ga. L. 1990, p. 257, § 19.)

COMMENT

Source: Del. Code Ann. tit. 8, § 203, as added by Del. Laws 1988, Ch. 204. This succeeds the identical provisions of the former Code, O.C.G.A. § 14-2-237 (Supp. 1988).

This provision is designed to encourage any person, before acquiring 10% of the outstanding voting stock of a resident domestic corporation, to seek approval of its board of directors for the terms of any contemplated business combination. By prohibiting a business combination with an interested shareholder for five years (subject to the exceptions described below) the statute attempts to preserve the board's independence and ability to negotiate freely on behalf of the resident domestic corporation.

Subsection (a) prohibits any person who acquires 10% or more of the voting stock (an "interested shareholder") of a resident domestic corporation that has elected coverage under this article from thereafter engaging in any business combination with the corporation for a period of five years from the date that person became an interested shareholder, unless that person obtains approval of the transaction in one of three ways:

(i) Prior to becoming an interested shareholder, the person obtains the consent of the board of directors;

(ii) Becomes the owner of at least 90% of the outstanding shares in the same transaction in which the 10% interest was acquired, excluding certain "insider" shares defined in the subsection; or

(iii) Subsequent to the 10% acquisition, acquires additional shares resulting in ownership of at least 90% of all the outstanding shares (including defined "insider" shares) and obtains the approval of the holders of a majority of the remaining shares, excluding the "insider" shares.

Subsection (b) provides an exception for holders of 10% of the stock who "inadvertently" become such, and who immediately divest themselves of sufficient shares to drop below the 10% ownership level. Those who do may then seek approval of a business combination under subparagraphs (i) and (ii) above. Inadvertent ownership could occur because the issuer has engaged in share repurchases that result in an increase in the percentage ownership represented by a fixed number of shares, or because a shareholder purchased shares in reliance on the issuer's public filings disclosing the number of outstanding shares, which did not reflect recent repurchases.

Note to 1989 Amendment The 1989 amendment to subsection (a)(3) added the phrase "excluding for purposes of determining the number of shares outstanding those shares owned by (A) persons who are directors or officers, their affiliates or associates; (B) subsidiaries of the resident domestic corporation; and (C) employee stock plans in which employee participants do not have the right to determine confidently whether shares held subject to the plan will be tendered in a tender or exchange offer" after the first comma. The effect was to reduce the proportion of shares that must be acquired before approval of the remaining shareholders could be sought.

Note to 1990 Amendment Prior to the 1990 amendment, paragraph (a)(1) provided for an exception to the application of the Business Combinations Act when, prior to the "date" that a shareholder became an interested shareholder, the resident domestic corporation's board of directors approved either the business combination or the transaction that resulted in the shareholder becoming an interested shareholder. The Georgia Business Combinations Act was modeled on Section 203 of the Delaware General Corporation Law. A recent Delaware Chancery Court decision, Siegman v. Columbia Pictures Entertainment, Inc., [Current] Fed. Sec. L. Rep. (CCH) Para. 97, 796 (Del. Ch. Oct. 31, 1989), held that "date" means "time" for purposes of the same exception under the Delaware statute. Thus, if a target resident domestic corporation's board approved an acquisition before the exact time at which an agreement is reached on a subsequent business combination, the three-year waiting period of the Act does not apply. The amendment's substitution of the word "time" for "date" is intended to eliminate any ambiguity and to assure that the result of the Delaware case is explicitly required by the Georgia statute.

The 1990 amendment also changed paragraphs (a)(2) and (a)(3) as such provisions relate to shares held under employee stock plans. The statute provides that shares held under such plans which do not meet certain confidential tender or exchange election features are excluded from the ninety percent threshold that an interested shareholder must acquire to exempt a transaction from the Business Combinations Act. The amendment clarifies that the determination as to whether such a plan provides participants with the requisite rights is to be made exclusively by reference to the plan's governing instruments.

Cross-References Additional approval of business combination, see § 14-2-1111. Bylaws increasing quorum or voting requirements for shareholders, see § 14-2-1021. Greater quorum or voting requirements for voting by shareholders, see § 14-2-727. Mergers, action on plan, see § 14-2-1103. Recapitalization, voting rights of groups, see § 14-2-1004. Reclassification, voting rights of groups, see § 14-2-1004. Sales of assets, action on plan, see § 14-2-1202. Share exchanges, action on plan, see § 14-2-1103.

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