§ 622 — Preemptive rights

§ 622. Preemptive rights.\n (a) As used in this section, the term:\n (1) "Unlimited dividend rights" means the right without limitation as\nto amount either to all or to a share of the balance of current or\nliquidating dividends after the payment of dividends on any shares\nentitled to a preference.\n (2) "Equity shares" means shares of any class, whether or not\npreferred as to dividends or assets, which have unlimited dividend\nrights.\n (3) "Voting rights" means the right to vote for the election of one or\nmore directors, excluding a right so to vote which is dependent on the\nhappening of an event specified in the certificate of incorporation\nwhich would change the voting rights of any class of shares.\n (4) "Voting shares" means shares of any class which have voting\nrights, but does not include bonds on which voting rights are conferred\nunder section 518 (Corporate bonds).\n (5) "Preemptive right" means the right to purchase shares or other\nsecurities to be issued or subjected to rights or options to purchase,\nas such right is defined in this section.\n (b) (1) With respect to any corporation incorporated prior to the\neffective date of subparagraph (2) of this paragraph, except as\notherwise provided in the certificate of incorporation, and except as\nprovided in this section, the holders of equity shares of any class, in\ncase of the proposed issuance by the corporation of, or the proposed\ngranting by the corporation of rights or options to purchase, its equity\nshares of any class or any shares or other securities convertible into\nor carrying rights or options to purchase its equity shares of any\nclass, shall, if the issuance of the equity shares proposed to be issued\nor issuable upon exercise of such rights or options or upon conversion\nof such other securities would adversely affect the unlimited dividend\nrights of such holders, have the right during a reasonable time and on\nreasonable conditions, both to be fixed by the board, to purchase such\nshares or other securities in such proportions as shall be determined as\nprovided in this section.\n (2) With respect to any corporation incorporated on or after the\neffective date of this subparagraph, the holders of such shares shall\nnot have any preemptive right, except as otherwise expressly provided in\nthe certificate of incorporation.\n (c) Except as otherwise provided in the certificate of incorporation,\nand except as provided in this section, the holders of voting shares of\nany class having any preemptive right under this paragraph on the date\nimmediately prior to the effective date of subparagraph (2) of paragraph\n(b) of this section, in case of the proposed issuance by the corporation\nof, or the proposed granting by the corporation of rights or options to\npurchase, its voting shares of any class or any shares or other\nsecurities convertible into or carrying rights or options to purchase\nits voting shares of any class, shall, if the issuance of the voting\nshares proposed to be issued or issuable upon exercise of such rights or\noptions or upon conversion of such other securities would adversely\naffect the voting rights of such holders, have the right during a\nreasonable time and on reasonable conditions, both to be fixed by the\nboard, to purchase such shares or other securities in such proportions\nas shall be determined as provided in this section.\n (d) The preemptive right provided for in paragraphs (b) and (c) shall\nentitle shareholders having such rights to purchase the shares or other\nsecurities to be offered or optioned for sale as nearly as practicable\nin such proportions as would, if such preemptive right were exercised,\npreserve the relative unlimited dividend rights and voting rights of\nsuch holders and at a price or prices not less favorable than the price\nor prices at which such shares or other securities are proposed to be\noffered for sale to others, without deduction of such reasonable\nexpenses of and compensation for the sale, underwriting or purchase of\nsuch shares or other securities by underwriters or dealers as may\nlawfully be paid by the corporation. In case each of the shares\nentitling the holders thereof to preemptive rights does not confer the\nsame unlimited dividend right or voting right, the board shall apportion\nthe shares or other securities to be offered or optioned for sale among\nthe shareholders having preemptive rights to purchase them in such\nproportions as in the opinion of the board shall preserve as far as\npracticable the relative unlimited dividend rights and voting rights of\nthe holders at the time of such offering. The apportionment made by the\nboard shall, in the absence of fraud or bad faith, be binding upon all\nshareholders.\n (e) Unless otherwise provided in the certificate of incorporation,\nshares or other securities offered for sale or subjected to rights or\noptions to purchase shall not be subject to preemptive rights under\nparagraph (b) or (c) of this section if they:\n (1) Are to be issued by the board to effect a merger or consolidation\nor offered or subjected to rights or options for consideration other\nthan cash;\n (2) Are to be issued or subjected to rights or options under paragraph\n(d) of section 505 (Rights and options to purchase shares; issue of\nrights and options to directors, officers and employees);\n (3) Are to be issued to satisfy conversion or option rights\ntheretofore granted by the corporation;\n (4) Are treasury shares;\n (5) Are part of the shares or other securities of the corporation\nauthorized in its original certificate of incorporation and are issued,\nsold or optioned within two years from the date of filing such\ncertificate; or\n (6) Are to be issued under a plan of reorganization approved in a\nproceeding under any applicable act of congress relating to\nreorganization of corporations.\n (f) Shareholders of record entitled to preemptive rights on the record\ndate fixed by the board under section 604 (Fixing record date), or, if\nno record date is fixed, then on the record date determined under\nsection 604, and no others shall be entitled to the right defined in\nthis section.\n (g) The board shall cause to be given to each shareholder entitled to\npurchase shares or other securities in accordance with this section, a\nnotice directed to him in the manner provided in section 605 (Notice of\nmeetings of shareholders) setting forth the time within which and the\nterms and conditions upon which the shareholder may purchase such shares\nor other securities and also the apportionment made of the right to\npurchase among the shareholders entitled to preemptive rights. Such\nnotice shall be given personally or by mail at least fifteen days prior\nto the expiration of the period during which the shareholder shall have\nthe right to purchase. All shareholders entitled to preemptive rights to\nwhom notice shall have been given as aforesaid shall be deemed\nconclusively to have had a reasonable time in which to exercise their\npreemptive rights.\n (h) Shares or other securities which have been offered to shareholders\nhaving preemptive rights to purchase and which have not been purchased\nby them within the time fixed by the board may thereafter, for a period\nof not exceeding one year following the expiration of the time during\nwhich shareholders might have exercised such preemptive rights, be\nissued, sold or subjected to rights or options to any other person or\npersons at a price, without deduction of such reasonable expenses of and\ncompensation for the sale, underwriting or purchase of such shares by\nunderwriters or dealers as may lawfully be paid by the corporation, not\nless than that at which they were offered to such shareholders. Any such\nshares or other securities not so issued, sold or subjected to rights or\noptions to others during such one year period shall thereafter again be\nsubject to the preemptive rights of shareholders.\n (i) Except as otherwise provided in the certificate of incorporation\nand except as provided in this section, no holder of any shares of any\nclass shall as such holder have any preemptive right to purchase any\nother shares or securities of any class which at any time may be sold or\noffered for sale by the corporation. Unless otherwise provided in the\ncertificate of incorporation, holders of bonds on which voting rights\nare conferred under section 518 shall have no preemptive rights.\n