Law reviews.

- For article discussing treasury shares and restrictions placed upon their use by the corporation, see 3 Ga. L. Rev. 11 (1968). For article discussing corporate authority to create and issue share rights and options, see 3 Ga. L. Rev. 11 (1968). For article, "Some Distinctive Features of the Georgia Business Corporation Code," 28 Ga. St. B. J. 101 (1991). For note on 2000 amendment of O.C.G.A. § 14-2-624, see 17 Ga. St. U. L. Rev. 46 (2000). For comment on the survivability of the dead hand provision in corporate America, see 48 Emory L.J. 991 (1999). For comment, "Poison Pills: Are Dead Hand Pills Dead in Georgia?," see 50 Mercer L. Rev. 809 (1999). For comment, "Locking the Boardroom Dorr: What Can Georgia Courts Learn from Recent Delaware Poison Pill Decisions," see 32 Georgia St. U. L. Rev. 727 (2016).

COMMENT

Source: Model Act, § 6.24. This replaces former § 14-2-86.

Subsection (a) is a simplification and liberalization of rules concerning rights and options. It merely authorizes the corporation, by its board, to issue rights, options, or warrants and set their terms.

The phrase "for the purchase of shares" in the first sentence of the 1984 Model Act was changed to "with respect to the shares" in subsection (a) of the Code to emphasize the breadth of the corporate powers given to directors in issuing rights, which are not intended to be limited to rights to purchase shares. The second sentence of the Model Act was amended in the Code to add the phrase "the terms and conditions relating to the exercise of such rights, options or warrants." This language is intended to eliminate any possible negative inference that the particular reference to determination of terms on which rights are issued might imply that the board lacked the power to set exercise conditions.

Subsection (b) is new, and corresponds to § 14-2-601(d). It validates the issuance of rights, options, or warrants even if there are not currently sufficient authorized but unissued shares to satisfy all such rights, options, or warrants if exercised. Former § 14-2-86(a) provided that no options could be issued unless there were sufficient authorized but unissued shares or treasury shares reserved at the time of issuance. Elimination of this language was intended to clarify that whether sufficient shares are reserved does not raise questions of the validity of the rights, options, or warrants issued, but rather raises questions of contract law and of duties of directors.

Note to 1989 Amendment Subsection (a) was amended to clarify that rights, options or warrants are permitted to be issued by a corporation whether or not in connection with the issuance of other securities of the corporation. The listing of items that may be covered in rights was expanded, by adding a reference to the time of exercise, the prices and the holders by whom the rights may be exercised. This was intended to clarify the intent of the 1988 Revised Code.

The concluding sentences of subsection (c) were added to the Model Act language to clarify the fact that the discretion granted to the board of directors to issue rights, options, or warrants and set their terms under subsection (a) is intended to be limited only by the directors' fiduciary obligations to the corporation. As such, any restrictions placed on the issuance of shares by Code Section14-2-601 should not be interpreted as applying to the issuance of rights, options, or warrants and the determination of their terms and conditions by the board of directors under subsection (a). The language was intended to permit the approach of courts interpreting Delaware law, including the Delaware Supreme Court in Moran v. Household International, Inc., 500 A.2d 346 (Del. 1985), which have held that the board of directors is authorized to issue rights pursuant to shareholder rights plans. See, e.g. Dynamics Corporation of America v. CTS Corp., 637 F. Supp. 406 (N.D.Ill.), aff'd, 794 F.2d 250 (7th Cir. 1986), reversed on other grounds, 107 S. Ct. 1637 (1987). The language rejects the holding of the Federal District Court for the Northern District of Georgia in West Point Pepperell, Inc. v. Farley Inc. (Nov. 14, 1988) and was intended specifically to permit the use by Georgia corporations of shareholder rights plans incorporating both so-called "flip-over" and discriminatory "flip-in" provisions.

Note to 2000 Amendment The 2000 amendments to Code Section 14-2-624 and the related changes to Code Sections 14-2-601, 14-2-602 and 14-2-801 are intended to resolve uncertainties that have arisen following the decision in Invacare Corp. v. Healthdyne Technologies, Inc., 968 F. Supp. 1578 (N.D. Ga. 1997). In that case, the court upheld the board of directors' adoption of a "dead-hand" provision in a "poison pill" shareholder rights plan (the effect of which is to limit the ability of newly elected directors to withdraw or change the plan). Commentators have raised issues concerning that decision in light of subsequent contrary authority in Delaware. See Carmody v. Toll Brothers, Inc., 723 A.2d 1180 (Del. Ch. 1998); Quickturn Design Systems, Inc. v. Shapiro, 721 A.2d 1281 (Del. 1998). Commentators have also questioned whether the inclusion of the words "in its sole discretion" in Code Section 14-2-624(c) should be read as overriding the requirements of not only Code Section 14-2-601 (which was specifically referred to in Code Section 14-2-624(c)) but also other sections of the Code, particularly Code Section 14-2-801.

Note to 2003 Amendment The amendment to Code Section 14-2-624(c) adds the same definition of "facts" ascertainable outside the documents evidencing the rights, or the resolution providing for the issue of the rights, options or warrants, as was added to Code Section 14-2-601.

Note to 2004 Amendment New subsection (f) to Code Section 14-2-624 clarifies Georgia law that a board of directors may delegate to an officer the authority to specify the officers and employees of the corporation or its subsidiaries who will receive options and to determine the number of options to be received by each such officer or employee so long as the board has specified the total number of options to be awarded. The statute also makes clear that the person delegated with the authority to choose new optionholders cannot choose himself or herself. This provision is modeled on Section 157(c) of the General Corporation Law of the State of Delaware.

By deleting the "sole discretion" language from Code Section 14-2-624(c), the amendments contemplate that Code Section 14-2-624 must be read in a manner consistent with other provisions of the Code. The 2000 amendments to subsection (d) authorize in more specific terms the use of "poison pill" shareholder rights plans (Code Section 14-2-624(d)(1)) and, contrary to the Delaware authority, permit limitations on the ability of newly elected directors to withdraw or change such a plan. Such limitations on a director's authority may only remain in effect for a maximum of 180 days from the initial election of such director, unless the limitations are based solely on certain current or former positions or relationships with the corporation, an interested shareholder or person seeking to become an interested shareholder, or an affiliate of an interested shareholder or person seeking to become an interested shareholder.

The 2000 amendments added subsection (e), which incorporates into this Code section the definitions of "beneficial owner," "affiliate," "associate," and "interested shareholder" contained in Code Section 14-2-1110, with the following exceptions: first, any exclusion from the definition of beneficial ownership is permitted (i.e., a "poison pill" need not cover all persons otherwise meeting the definition of "beneficial owner"), and, second, the beneficial ownership definition does not apply to previously existing plans until December 31, 2000. The amendments also expressly provide that the inclusion of a person as a nominee for election as a director by an interested shareholder or person seeking to become an interested shareholder does not create an implication that the nominee is an affiliate of such interested shareholder or person seeking to become an interested shareholder. Subsection (e) also preserves the validity of provisions in rights, options or warrants which contain a limitation on the authority of newly elected directors that does not purport to comply with the time limitations of subsection (d)(2), but allows such provisions to be effective only to the extent permitted by subsection (d)(2).

Cross-References "Affiliate" defined, see § 14-2-1110. "Associate" defined, see § 14-2-1110. Authorized shares, see § 14-2-601. "Beneficial Owner" defined, see § 14-2-1110. Committees of the board, see § 14-2-825. Consideration for shares, see § 14-2-621. Director standards of conduct, see § 14-2-830 et seq. Distributions, see § 14-2-640. "Interested Shareholder" defined, see § 14-2-1110. Report to shareholders on certain consideration for shares, see § 14-2-1621. Requirement for and duties of board of directors, see § 14-2-801. Share option plans, see § 14-2-302. Terms of class or series determined by board of directors, see § 14-6-601.

JUDICIAL DECISIONS

RESEARCH REFERENCES