2561 - Application and effect of subchapter.
SUBCHAPTER G CONTROL-SHARE ACQUISITIONS Sec. 2561. Application and effect of subchapter. 2562. Definitions. 2563. Acquiring person safe harbor. 2564. Voting rights of shares acquired in a control-share acquisition. 2565. Procedure for establishing voting rights of control shares. 2566. Information statement of acquiring person. 2567. Redemption. 2568. Board determinations. Enactment. Subchapter G was added April 27, 1990, P.L.129, No.36, effective immediately. Cross References. Subchapter G is referred to in sections 1715, 1903, 1924, 1953, 2575, 2581 of this title. § 2561. Application and effect of subchapter. (a) General rule.--Except as otherwise provided in this section, this subchapter shall apply to every registered corporation. (b) Exceptions.--This subchapter shall not apply to any control-share acquisition: (1) Of a registered corporation described in section 2502(1)(ii) or (2) (relating to registered corporation status). (2) Of a corporation: (i) the bylaws of which explicitly provide that this subchapter shall not be applicable to the corporation by amendment adopted by the board of directors on or before July 26, 1990, in the case of a corporation: (A) which on April 27, 1990, was a registered corporation described in section 2502(1)(i); and (B) did not on that date have outstanding one or more classes or series of preference shares entitled, upon the occurrence of a default in the payment of dividends or another similar contingency, to elect a majority of the members of the board of directors (a bylaw adopted on or before July 26, 1990, by a corporation excluded from the scope of this subparagraph by this clause shall be ineffective unless ratified under subparagraph (ii)); (ii) the bylaws of which explicitly provide that this subchapter shall not be applicable to the corporation by amendment ratified by the board of directors on or after December 19, 1990, and on or before March 19, 1991, in the case of a corporation: (A) which on April 27, 1990, was a registered corporation described in section 2502(1)(i); (B) which on that date had outstanding one or more classes or series of preference shares entitled, upon the occurrence of a default in the payment of dividends or another similar contingency, to elect a majority of the members of the board of directors; and (C) the bylaws of which on that date contained a provision described in subparagraph (i); or (iii) in any other case, the articles of which explicitly provide that this subchapter shall not be applicable to the corporation by a provision included in the original articles, or by an articles amendment adopted at any time while it is a corporation other than a registered corporation described in section 2502(1)(i) or on or before 90 days after the corporation first becomes a registered corporation described in section 2502(1)(i). (3) Consummated before October 17, 1989. (4) Consummated pursuant to contractual rights or obligations existing before: (i) October 17, 1989, in the case of a corporation which was a registered corporation described in section 2502(1)(i) on that date; or (ii) in any other case, the date this subchapter becomes applicable to the corporation. (5) Consummated: (i) Pursuant to a gift, devise, bequest or otherwise through the laws of inheritance or descent. (ii) By a settlor to a trustee under the terms of a family, testamentary or charitable trust. (iii) By a trustee to a trust beneficiary or a trustee to a successor trustee under the terms of, or the addition, withdrawal or demise of a beneficiary or beneficiaries of, a family, testamentary or charitable trust. (iv) Pursuant to the appointment of a guardian or custodian. (v) Pursuant to a transfer from one spouse to another by reason of separation or divorce or pursuant to community property laws or other similar laws of any jurisdiction. (vi) Pursuant to the satisfaction of a pledge or other security interest created in good faith and not for the purpose of circumventing this subchapter. (vii) Pursuant to a merger, consolidation or plan of share exchange effected in compliance with the provisions of this chapter if the corporation is a party to the agreement of merger, consolidation or plan of share exchange. (viii) Pursuant to a transfer from a person who beneficially owns voting shares of the corporation that would entitle the holder thereof to cast at least 20% of the votes that all shareholders would be entitled to cast in an election of directors of the corporation and who acquired beneficial ownership of such shares prior to October 17, 1989. (ix) By the corporation or any of its subsidiaries. (x) By any savings, stock ownership, stock option or other benefit plan of the corporation or any of its subsidiaries, or by any fiduciary with respect to any such plan when acting in such capacity. (xi) By a person engaged in business as an underwriter of securities who acquires the shares directly from the corporation or an affiliate or associate of the corporation through his participation in good faith in a firm commitment underwriting registered under the Securities Act of 1933. (xii) Or commenced by a person who first became an acquiring person: (A) after April 27, 1990; and (B) (I) at a time when this subchapter was or is not applicable to the corporation; or (II) on or before ten business days after the first public announcement by the corporation that this subchapter is applicable to the corporation, if this subchapter was not applicable to the corporation on July 27, 1990. (c) Effect of distributions.--For purposes of this subchapter, voting shares of a corporation acquired by a holder as a result of a stock split, stock dividend or other similar distribution by a corporation of voting shares issued by the corporation and not involving a sale of such voting shares shall be deemed to have been acquired by the holder in the same transaction (at the same time, in the same manner and from the same person) in which the holder acquired the shares with respect to which such voting shares were subsequently distributed by the corporation. (d) Status of certain shares and effect of formation of group on status.-- (1) No share over which voting power, or of which beneficial ownership, was or is acquired by the acquiring person in or in connection with a control-share acquisition described in subsection (b) shall be deemed to be a control share. (2) In the case of affiliate, disinterested or existing shares, the acquisition of a beneficial ownership interest in a voting share by a group shall not, by itself, affect the status of an affiliate, disinterested or existing share, as such, if and so long as the person who had beneficial ownership of the share immediately prior to the acquisition of the beneficial ownership interest in the share by the group (or a direct or indirect transferee from the person to the extent such shares were acquired by the transferee solely pursuant to a transfer or series of transfers under subsection (b)(5)(i) through (vi)): (i) is a participant in the group; and (ii) continues to have at least the same voting and dispositive power over the share as the person had immediately prior to the acquisition of the beneficial ownership interest in the share by the group. (3) Voting shares which are beneficially owned by a person described in paragraph (1), (2) or (3) of the definition of "affiliate shares" in section 2562 (relating to definitions) shall continue to be deemed affiliate shares, notwithstanding paragraph (2) of this subsection or the fact that such shares are also beneficially owned by a group. (4) No share of a corporation over which voting power, or of which beneficial ownership, was or is acquired by the acquiring person after April 27, 1990, at a time when this subchapter was or is not applicable to the corporation shall be deemed to be a control share. (e) Application of duties.--The duty of the board of directors, committees of the board and individual directors under section 2565 (relating to procedure for establishing voting rights of control shares) is solely to the corporation and may be enforced directly by the corporation or may be enforced by a shareholder, as such, by an action in the right of the corporation, and may not be enforced directly by a shareholder or by any other person or group. (Dec. 19, 1990, P.L.834, No.198, eff. imd.) 1990 Amendment. Act 198 amended subsecs. (b)(2) and (e) and added subsecs. (b)(5)(xi) and (xii) and (d)(4). Liability of Directors. Section 8(b) of Act 36 provided that a director shall not be held liable for taking or omitting to take any action permitted by section 2561(b)(2), it being the intention of Act 36 that any such director may exercise absolute discretion in taking or omitting to take any such action. Cross References. Section 2561 is referred to in sections 2562, 2564, 2581 of this title.