act-1990-0-36•Pennsylvania Act 1990-36 — ASSOCIATIONS CODE (15 PA.C.S.) - AMEND
Pennsylvania Act 1990-36 — ASSOCIATIONS CODE (15 PA.C.S.) - AMEND
act-1990-0-361990 Pa. Act 36Law
Act text part 1
ASSOCIATIONS CODE (15 PA.C.S.) - AMEND
Act of Apr. 27, 1990, P.L. 129, No. 36 Cl. 15
Session of 1990
No. 1990-36
SB 1310
AN ACT
Amending Title 15 (Corporations and Unincorporated Associations)
of the Pennsylvania Consolidated Statutes, clarifying the
fiduciary obligations of directors of corporations and other
associations; clarifying certain definitions; adding
provisions relating to control-share acquisitions; and
providing for disgorgement by certain controlling
shareholders following attempts to acquire control of certain
corporations, for severance compensation for employees
terminated following certain control-share acquisitions and
for the effect of business combination transactions on labor
contracts.
The General Assembly of the Commonwealth of Pennsylvania
hereby enacts as follows:
Section 1. Section 102 of Title 15 of the Pennsylvania
Consolidated Statutes is amended by adding a definition to read:
§ 102. Definitions.
Subject to additional or inconsistent definitions contained
in subsequent provisions of this title that are applicable to
specific provisions of this title, the following words and
phrases when used in this title shall have, unless the context
clearly indicates otherwise, the meanings given to them in this
section:
"Act" or "action." Includes failure to act.
* * *
Section 2. Sections 511 and 512 of Title 15 are amended to
read:
§ 511. Standard of care and justifiable reliance.
(a) Director as fiduciary.--A director of a domestic
corporation shall stand in a fiduciary relation to the
corporation and shall perform his duties as a director,
including his duties as a member of any committee of the board
upon which he may serve, in good faith, in a manner he
reasonably believes to be in the best interests of the
corporation and with such care, including reasonable inquiry,
skill and diligence, as a person of ordinary prudence would use
under similar circumstances. In performing his duties, a
director shall be entitled to rely in good faith on information,
opinions, reports or statements, including financial statements
and other financial data, in each case prepared or presented by
any of the following:
(1) One or more officers or employees of the corporation
whom the director reasonably believes to be reliable and
competent in the matters presented.
(2) Counsel, public accountants or other persons as to
matters which the director reasonably believes to be within
the professional or expert competence of such person.
(3) A committee of the board upon which he does not
serve, duly designated in accordance with law, as to matters
within its designated authority, which committee the director
reasonably believes to merit confidence.
A director shall not be considered to be acting in good faith if
he has knowledge concerning the matter in question that would
cause his reliance to be unwarranted.
(b) Consideration of factors.--In discharging the duties of
their respective positions, the board of directors, committees
of the board and individual directors may, in considering the
best interests of the corporation, consider the effects of any
action upon employees, upon suppliers and customers of the
corporation and upon communities in which offices or other
establishments of the corporation are located, and all other
pertinent factors. The consideration of those factors shall not
constitute a violation of subsection (a).
(c) Presumption.--Absent breach of fiduciary duty, lack of
good faith or self-dealing, actions taken as a director or any
failure to take any action shall be presumed to be in the best
interests of the corporation.
(d) Consideration of interests and factors.--In discharging
the duties of their respective positions, the board of
directors, committees of the board and individual directors may,
in considering the best interests of the corporation, consider
to the extent they deem appropriate:
(1) The effects of any action upon any or all groups
affected by such action, including shareholders, employees,
suppliers, customers and creditors of the corporation, and
upon communities in which offices or other establishments of
the corporation are located.
(2) The short-term and long-term interests of the
corporation, including benefits that may accrue to the
corporation from its long-term plans and the possibility that
these interests may be best served by the continued
independence of the corporation.
(3) The resources, intent and conduct (past, stated and
potential) of any person seeking to acquire control of the
corporation.
(4) All other pertinent factors.
The board of directors, committees of the board and individual
directors shall not be required, in considering the best
interests of the corporation or the effects of any action, to
regard any corporate interest or the interests of any particular
group affected by such action as a dominant or controlling
interest or factor. The consideration of interests and factors
in the manner described in this subsection shall not constitute
a violation of subsection (a). The duty of the board of
directors, committees of the board and individual directors
under subsection (a) is solely to the corporation and may be
enforced directly by the corporation or may be enforced by a
shareholder or member, as such, by an action in the right of the
corporation, and may not be enforced directly by a shareholder,
member or by any other person or group. Notwithstanding the
preceding sentence, this subsection does not impose upon the
board of directors, committees of the board and individual
directors, any legal or equitable duties, obligations or
liabilities or create any right or cause of action against, or
basis for standing to sue, the board of directors, committees of
the board and individual directors.
(e) Specific applications.--In exercising the powers vested
in the corporation, and in no way limiting the discretion of the
board of directors, committees of the board and individual
directors pursuant to subsection (d), the fiduciary duty of
directors shall not be deemed to require them to act as the
board of directors, a committee of the board or an individual
director solely because of the effect such action might have on
an acquisition or potential or proposed acquisition of control
of the corporation or the consideration that might be offered or
paid to shareholders in such an acquisition.
(f) Presumption.--Absent breach of fiduciary duty, lack of
good faith or self-dealing, any act as the board of directors, a
committee of the board or an individual director shall be
presumed to be in the best interests of the corporation. In
assessing whether the standard set forth in this section has
been satisfied, there shall not be any greater obligation to
justify, or higher burden of proof with respect to, any act as
the board of directors, any committee of the board or any
individual director relating to or affecting an acquisition or
potential or proposed acquisition of control of the corporation
than is applied to any other act as a board of directors, any
committee of the board or any individual director.
Notwithstanding the preceding provisions of this subsection, any
act as the board of directors, a committee of the board or an
individual director relating to or affecting an acquisition or
potential or proposed acquisition of control to which a majority
of the disinterested directors shall have assented shall be
presumed to satisfy the standard set forth in this section,
unless it is proven by clear and convincing evidence that the
disinterested directors did not assent to such act in good faith
after reasonable investigation.
(g) Application to certain corporations.--Subsections (b)
and (c) shall not be applicable to any corporation to which
subsections (d) through (f) are applicable. Subsections (d)
through (f) shall be applicable to any corporation except a
corporation:
(1) the bylaws of which by amendment adopted by the
board of directors on or before (in printing this act in the
Laws of Pennsylvania and the Pennsylvania Consolidated
Statutes, the Legislative Reference Bureau shall insert here,
in lieu of this statement, the date which is 90 days after
the effective date of this amended section), and not
subsequently rescinded by an articles amendment, explicitly
provide that subsections (d) through (f) shall not be
applicable to the corporation; or
(2) the articles of which explicitly provide that
subsections (d) through (f) shall not be applicable to the
corporation.
(h) Definition.--The term "disinterested director" as used
in subsection (f) and for no other purpose means:
(1) A director of the corporation other than:
(i) A director who has a direct or indirect
financial or other interest in the person acquiring or
seeking to acquire control of the corporation or who is
an affiliate or associate, as defined in section 2552
(relating to definitions), of, or was nominated or
designated as a director by, a person acquiring or
seeking to acquire control of the corporation.
(ii) Depending on the specific facts surrounding the
director and the act under consideration, an officer or
employee or former officer or employee of the
corporation.
(2) A person shall not be deemed to be other than a
disinterested director solely by reason of any or all of the
following:
(i) The ownership by the director of shares of the
corporation.
(ii) The receipt as a holder of shares of any class
or series of any distribution made to all owners of
shares of that class or series.
(iii) The receipt by the director of director's fees
or other consideration as a director.
(iv) Any interest the director may have in retaining
the status or position of director.
(v) The former business or employment relationship
of the director with the corporation.
(vi) Receiving or having the right to receive
retirement or deferred compensation from the corporation
due to service as a director, officer or employee.
(i) Interpretation and construction.--Section 1721(l)(2)
(relating to interpretation, construction and application) shall
be applicable to this section.
§ 512. Personal liability of directors.
(a) General rule.--Whenever the bylaws of a corporation by a
vote of the shareholders or members so provide, a director of a
domestic corporation shall not be personally liable, as such,
for monetary damages for any action taken[, or any failure to
take any action,] unless:
(1) the director has breached or failed to perform the
duties of his office under section 511 (relating to standard
of care and justifiable reliance); and
(2) the breach or failure to perform constitutes self-
dealing, willful misconduct or recklessness.
(b) Exception.--[The provisions of this section] Subsection
(a) shall not apply to:
(1) the responsibility or liability of a director
pursuant to any criminal statute; or
(2) the liability of a director for the payment of taxes
pursuant to local, State or Federal law.
Section 3. Section 1103 of Title 15 is amended by adding a
definition to read:
§ 1103. Definitions.
Subject to additional definitions contained in subsequent
provisions of this subpart that are applicable to specific
provisions of this subpart, the following words and phrases when
used in this subpart shall have the meanings given to them in
this section unless the context clearly indicates otherwise:
"Act" or "action." Includes failure to act.
* * *
Section 4. Sections 1721 and 2502 of Title 15 are amended to
read:
§ 1721. Board of directors.
(a) General rule.--Unless otherwise provided by statute or
in a bylaw adopted by the shareholders, all powers enumerated in
section 1502 (relating to general powers) and elsewhere in this
subpart or otherwise vested by law in a business corporation
shall be exercised by or under the authority of, and the
business and affairs of every business corporation shall be
managed under the direction of, a board of directors. If any
such provision is made in the bylaws, the powers and duties
conferred or imposed upon the board of directors by this subpart
shall be exercised or performed to such extent and by such
person or persons as shall be provided in the bylaws.
(b) Standard of care; justifiable reliance.--A director
shall stand in a fiduciary relation to the corporation and shall
perform his duties as a director, including his duties as a
member of any committee of the board upon which he may serve, in
good faith, in a manner he reasonably believes to be in the best
interests of the corporation and with such care, including
reasonable inquiry, skill and diligence, as a person of ordinary
prudence would use under similar circumstances. In performing
his duties, a director shall be entitled to rely in good faith
on information, opinions, reports or statements, including
financial statements and other financial data, in each case
prepared or presented by any of the following:
(1) One or more officers or employees of the corporation
whom the director reasonably believes to be reliable and
competent in the matters presented.
(2) Counsel, public accountants or other persons as to
matters which the director reasonably believes to be within
the professional or expert competence of such person.
(3) A committee of the board upon which he does not
serve, duly designated in accordance with law, as to matters
within its designated authority, which committee the director
reasonably believes to merit confidence.
A director shall not be considered to be acting in good faith if
he has knowledge concerning the matter in question that would
cause his reliance to be unwarranted.
(c) Consideration of factors.--In discharging the duties of
their respective positions, the board of directors, committees
of the board and individual directors may, in considering the
best interests of the corporation, consider the effects of any
action upon employees, upon suppliers and customers of the
corporation and upon communities in which offices or other
establishments of the corporation are located, and all other
pertinent factors. The consideration of those factors shall not
constitute a violation of subsection (b).
(d) Presumption.--Absent breach of fiduciary duty, lack of
good faith or self-dealing, actions taken as a director or any
failure to take any action shall be presumed to be in the best
interests of the corporation.
(e) Consideration of interests and factors.--In discharging
the duties of their respective positions, the board of
directors, committees of the board and individual directors may,
in considering the best interests of the corporation, consider
to the extent they deem appropriate:
(1) The effects of any action upon any or all groups
affected by such action, including shareholders, employees,
suppliers, customers and creditors of the corporation, and
upon communities in which offices or other establishments of
the corporation are located.
(2) The short-term and long-term interests of the
corporation, including benefits that may accrue to the
corporation from its long-term plans and the possibility that
these interests may be best served by the continued
independence of the corporation.
(3) The resources, intent and conduct (past, stated and
potential) of any person seeking to acquire control of the
corporation.
(4) All other pertinent factors.
The board of directors, committees of the board and individual
directors shall not be required, in considering the best
interests of the corporation or the effects of any action, to
regard any corporate interest or the interests of any particular
group affected by such action as a dominant or controlling
interest or factor. The consideration of interests and factors
in the manner described in this subsection shall not constitute
a violation of subsection (b). The duty of the board of
directors, committees of the board and individual directors
under subsection (b) 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. Notwithstanding the preceding
sentence, this subsection does not impose upon the board of
directors, committees of the board and individual directors any
legal or equitable duties, obligations or liabilities or create
any right or cause of action against, or basis for standing to
sue, the board of directors, committees of the board and
individual directors.
(f) Specific applications.--In exercising the powers vested
in the corporation, including, without limitation, those powers
pursuant to section 1502, and in no way limiting the discretion
of the board of directors, committees of the board and
individual directors pursuant to subsection (e), the fiduciary
duty of directors shall not be deemed to require them:
(1) to redeem any rights under, or to modify or render
inapplicable, any shareholder rights plan, including, but not
limited to, a plan adopted pursuant or made subject to
section 2513 (relating to disparate treatment of certain
persons);
(2) to render inapplicable, or make determinations
under, the provisions of Subchapter E of Chapter 25 (relating
to control transactions), Subchapter F of Chapter 25
(relating to business combinations), Subchapter G of Chapter
25 (relating to control-share acquisitions) or Subchapter H
of Chapter 25 (relating to disgorgement by certain
controlling shareholders following attempts to acquire
control) or under any other provision of this title relating
to or affecting acquisitions or potential or proposed
acquisitions of control; or
(3) to act as the board of directors, a committee of the
board or an individual director solely because of the effect
such action might have on an acquisition or potential or
proposed acquisition of control of the corporation or the
consideration that might be offered or paid to shareholders
in such an acquisition.
(g) Presumption.--Absent breach of fiduciary duty, lack of
good faith or self-dealing, any act as the board of directors, a
committee of the board or an individual director shall be
presumed to be in the best interests of the corporation. In
assessing whether the standard set forth in this section has
been satisfied, there shall not be any greater obligation to
justify, or higher burden of proof with respect to, any act as
the board of directors, any committee of the board or any
individual director relating to or affecting an acquisition or
potential or proposed acquisition of control of the corporation
than is applied to any other act as a board of directors, any
committee of the board or any individual director.
Notwithstanding the preceding provisions of this subsection, any
act as the board of directors, a committee of the board or an
individual director relating to or affecting an acquisition or
potential or proposed acquisition of control to which a majority
of the disinterested directors shall have assented shall be
presumed to satisfy the standard set forth in this section,
unless it is proven by clear and convincing evidence that the
disinterested directors did not assent to such act in good faith
after reasonable investigation.
[(e)] (h) Personal liability of directors.--
(1) If a bylaw adopted by the shareholders so provides,
a director shall not be personally liable, as such, for
monetary damages for any action taken[, or any failure to
take any action,] unless:
(i) the director has breached or failed to perform
the duties of his office under this section; and
(ii) the breach or failure to perform constitutes
self-dealing, willful misconduct or recklessness.
(2) [The provisions of paragraph] Paragraph (1) shall
not apply to:
(i) the responsibility or liability of a director
pursuant to any criminal statute; or
(ii) the liability of a director for the payment of
taxes pursuant to local, State or Federal law.
[(f)] (i) Notation of dissent.--A director of a corporation
who is present at a meeting of its board of directors, or of a
committee of the board, at which action on any corporate matter
is taken shall be presumed to have assented to the action taken
unless his dissent is entered in the minutes of the meeting or
unless he files his written dissent to the action with the
secretary of the meeting before the adjournment thereof or
transmits the dissent in writing to the secretary of the
corporation immediately after the adjournment of the meeting.
The right to dissent shall not apply to a director who voted in
favor of the action. Nothing in this section shall bar a
director from asserting that minutes of the meeting incorrectly
omitted his dissent if, promptly upon receipt of a copy of such
minutes, he [notified] notifies the secretary, in writing, of
the asserted omission or inaccuracy.
(j) Application to certain corporations.--Subsections (c)
and (d) shall not be applicable to any corporation to which
subsections (e) through (g) are applicable. Subsection (e)
through (g) shall be applicable to:
(1) Any registered corporation described in section
2502(1)(i) (relating to registered corporation status),
except a corporation:
(i) the bylaws of which explicitly provide that
subsections (e) through (g) shall not be applicable to
the corporation by amendment adopted by the board of
directors on or before (in printing this act in the Laws
of Pennsylvania and the Pennsylvania Consolidated
Statutes, the Legislative Reference Bureau shall insert
here, in lieu of this statement, the date which is 90
days after the effective date of this amended section) in
the case of a corporation that was a registered
corporation described in section 2502(1)(i) on (in
printing this act in the Laws of Pennsylvania and the
Pennsylvania Consolidated Statutes, the Legislative
Reference Bureau shall insert here, in lieu of this
statement, the effective date of this amended section);
or
(ii) in any other case, the articles of which
explicitly provide that subsections (e) through (g) shall
not be applicable to the corporation by a provision
included in the original articles, or by an articles
amendment adopted on or before 90 days after the
corporation first becomes a registered corporation
described in section 2502(1)(i).
(2) Any other business corporation, except a
corporation:
(i) the bylaws of which explicitly provide that
subsections (e) through (g) shall not be applicable to
the corporation by amendment adopted by the board of
directors on or before (in printing this act in the Laws
of Pennsylvania and the Pennsylvania Consolidated
Statutes, the Legislative Reference Bureau shall insert
here, in lieu of this statement, the date which is one
year after the effective date of this amended section) in
the case of a corporation that was a business corporation
on (in printing this act in the Laws of Pennsylvania and
the Pennsylvania Consolidated Statutes, the Legislative
Reference Bureau shall insert here, in lieu of this
statement, the effective date of this amended section);
or
(ii) in any other case, the articles of which
explicitly provide that subsections (e) through (g) shall
not be applicable to the corporation by a provision
included in the original articles, or by an articles
amendment adopted on or before one year after the
corporation first becomes a business corporation.
(k) Definition.--The term "disinterested director" as used
in subsection (g) and for no other purpose means:
(1) A director of the corporation other than:
(i) A director who has a direct or indirect
financial or other interest in the person acquiring or
seeking to acquire control of the corporation or who is
an affiliate or associate, as defined in section 2552
(relating to definitions), of, or was nominated or
designated as a director by, a person acquiring or
seeking to acquire control of the corporation.
(ii) Depending on the specific facts surrounding the
director and the act under consideration, an officer or
employee or former officer or employee of the
corporation.
(2) A person shall not be deemed to be other than a
disinterested director solely by reason of any or all of the
following:
(i) The ownership by the director of shares of the
corporation.
(ii) The receipt as a holder of shares of any class
or series of any distribution made to all owners of
shares of that class or series.
(iii) The receipt by the director of director's fees
or other consideration as a director.
(iv) Any interest the director may have in retaining
the status or position of director.
(v) The former business or employment relationship
of the director with the corporation.
(vi) Receiving or having the right to receive
retirement or deferred compensation from the corporation
due to service as a director, officer or employee.
[(g) Cross references.--See Subchapter B of Chapter 5
(relating to indemnification and corporate directors' liability)
and 42 Pa.C.S. Ch. 83 Subch. F (relating to corporate directors'
liability).]
(l) Interpretation, construction and application.--This
section shall control over any inconsistent provision of:
(1) sections 511 (relating to standard of care and
justifiable reliance) and 512 (relating to personal liability
of directors); and
(2) 42 Pa.C.S. § 8363 (relating to standard of care and
justifiable reliance) or 8364 (relating to personal liability
of directors) with respect to any act as a board of
directors, committee of the board or an individual director
of a business corporation and to any claim made or action or
proceeding against any board of directors, a committee of the
board or an individual director of a corporation by or in the
right of the corporation or by any third party or otherwise,
and any reference in the articles or in a bylaw, contract,
agreement, resolution, vote or approval of shareholders, or
otherwise of a corporation to 42 Pa.C.S. § 8363 or 8364 shall
be deemed to be a reference to this section.
§ 2502. Registered corporation status.
Subject to additional definitions contained in subsequent
provisions of this chapter which are applicable to specific
subchapters of this chapter, as used in this chapter, the term
"registered corporation" shall mean:
(1) A domestic business corporation:
(i) having a class or series of shares entitled to
vote generally in the election of directors of the
corporation registered under the Securities Exchange Act
of 1934 (15 U.S.C. § 78a et seq.); or
(ii) subject to the reporting obligations imposed by
section [13] 15(d) of the Securities Exchange Act of 1934
(15 U.S.C. § [78m] 78o(d)) by reason of having filed a
registration statement which has become effective under
the Securities Act of 1933 (15 U.S.C. § 77a et seq.)
relating to shares of a class or series of its equity
securities.
A corporation which satisfies both subparagraphs (i) and (ii)
shall be deemed to be described solely in subparagraph (i)
for the purposes of this chapter.
(2) A domestic business corporation all of the shares of
which are owned, directly or indirectly, by one or more
registered corporations or foreign corporations for profit
described in section 4102(b) (relating to registered
corporation exclusions).
Section 5. Section 2542 of Title 15 is amended to read:
§ 2542. Definitions.
The following words and phrases when used in this subchapter
shall have the meanings given to them in this section unless the
context clearly indicates otherwise:
"Control transaction." The acquisition by a person or group
of the status of a controlling person or group.
"Controlling person or group." A controlling person or group
as defined in section 2543 (relating to controlling person or
group).
"Fair value." A value not less than the highest price paid
per share by the controlling person or group at any time during
the 90-day period ending on and including the date of the
control transaction plus an increment representing any value,
including, without limitation, any proportion of any value
payable for acquisition of control of the corporation, that may
not be reflected in such price.
"Partial payment amount." The amount per share specified in
section 2545(c)(2) (relating to contents of notice).
"Subsidiary." Any corporation as to which any other
corporation has or has the right to acquire, directly or
indirectly, through the exercise of all warrants, options and
rights and the conversion of all convertible securities, whether
issued or granted by the subsidiary or otherwise, voting power
over voting shares of the subsidiary that would entitle the
holders thereof to cast in excess of 50% of the votes that all
shareholders would be entitled to cast in the election of
directors of such subsidiary, except that a subsidiary will not
be deemed to cease being a subsidiary as long as such
corporation remains a controlling person or group within the
meaning of this subchapter.
"Voting shares." The term shall have the meaning specified
in section 2552 (relating to definitions).
Section 6. Chapter 25 of Title 15 is amended by adding
subchapters to read:
CHAPTER 25
REGISTERED CORPORATIONS
* * *
SUBCHAPTER G
CONTROL-SHARE ACQUISITIONS
Sec.
2561. Application and effect of subchapter.
2562. Definitions.
2562.1. Acquiring person safe harbor.
2563. Voting rights of shares acquired in control-share
acquisition.
2564. Procedure for establishing voting rights of control
shares.
2565. Information statement of acquiring person.
2566. Redemption.
2567. Board determinations.
§ 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
(in printing this act in the Laws of Pennsylvania and the
Pennsylvania Consolidated Statutes, the Legislative
Reference Bureau shall insert here, in lieu of this
statement, the date which is 90 days after the effective
date of this subchapter) in the case of a corporation
which was a registered corporation described in section
2502(1)(i) on (in printing this act in the Laws of
Pennsylvania and the Pennsylvania Consolidated Statutes,
the Legislative Reference Bureau shall insert here, in
lieu of this statement, the effective date of this
subchapter); or
(ii) 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 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.
(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.
(e) Application of duties.--The duty of the board of
directors, committees of the board and individual directors
under section 2564 (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.
§ 2562. Definitions.
The following words and phrases when used in this subchapter
shall have the meanings given to them in this section unless the
context clearly indicates otherwise:
"Acquiring person." A person who makes or proposes to make a
control-share acquisition. Two or more persons acting in
concert, whether or not pursuant to an express agreement,
arrangement, relationship or understanding, including as a
partnership, limited partnership, syndicate, or through any
means of affiliation whether or not formally organized, for the
purpose of acquiring, holding, voting or disposing of shares of
a registered corporation, shall also constitute a person for the
purposes of this subchapter. A person, together with its
affiliates and associates, shall constitute a person for the
purposes of this subchapter.
"Affiliate," "associate" and "beneficial owner." The terms
shall have the meanings specified in section 2552 (relating to
definitions). The corporation may adopt reasonable provisions to
evidence beneficial ownership, specifically including
requirements that holders of voting shares of the corporation
provide verified statements evidencing beneficial ownership and
attesting to the date of acquisition thereof.
"Affiliate shares." All voting shares of a corporation
beneficially owned by:
(1) an acquiring person;
(2) executive officers or directors who are also
officers (including executive officers); or
(3) employee stock plans in which employee participants
do not have, under the terms of the plan, the right to direct
confidentially the manner in which shares held by the plan
for the benefit of the employee will be voted in connection
with the consideration of the voting rights to be accorded
control shares.
The term does not include existing shares beneficially owned by
executive officers or directors who are also officers (including
executive officers) if the shares are shares described in
paragraph (2) of the definition of "existing shares" that were
beneficially owned continuously by the same person or entity
described in such paragraph since January 1, 1988, or are shares
described in paragraph (3) of that definition that were acquired
with respect to such existing shares.
"Control." The term shall have the meaning specified in
section 2573 (relating to definitions).
"Control-share acquisition." An acquisition, directly or
indirectly, by any person of voting power over voting shares of
a corporation that, but for this subchapter, would, when added
to all voting power of the person over other voting shares of
the corporation (exclusive of voting power of the person with
respect to existing shares of the corporation), entitle the
person to cast or direct the casting of such a percentage of the
votes for the first time with respect to any of the following
ranges that all shareholders would be entitled to cast in an
election of directors of the corporation:
(1) at least 20% but less than 33 1/3%;
(2) at least 33 1/3% but less than 50%; or
(3) 50% or more.
"Control shares." Those voting shares of a corporation that,
upon acquisition of voting power over such shares by an
acquiring person, would result in a control-share acquisition.
Voting shares beneficially owned by an acquiring person shall
also be deemed to be control shares where such beneficial
ownership was acquired by the acquiring person:
(1) within 180 days of the day the person makes a
control-share acquisition; or
(2) with the intention of making a control-share
acquisition.
"Disinterested shares." All voting shares of a corporation
that are not affiliate shares and that were beneficially owned
by the same holder (or a direct or indirect transferee from the
holder to the extent such shares were acquired by the transferee
solely pursuant to a transfer or series of transfers under
section 2561(b)(5)(i) through (vi) (relating to application and
effect of subchapter)) continuously during the period from:
(1) the last to occur of the following dates:
(i) 12 months preceding the record date described in
paragraph (2);
(ii) five business days prior to the date on which
there is first publicly disclosed or caused to be
disclosed information that there is a person (including
the acquiring person) who intends to engage or may seek
to engage in a control-share acquisition or that there is
a person (including the acquiring person) who has
acquired shares as part of, or with the intent of making,
a control-share acquisition, as determined by the board
of directors of the corporation in good faith considering
all the evidence that the board deems to be relevant to
such determination, including, without limitation, media
reports, share trading volume and changes in share
prices; or
(iii) (A) October 17, 1989, in the case of a
corporation which was a registered corporation on
that date; or
(B) in any other case, the date this subchapter
becomes applicable to the corporation; through
(2) the record date established pursuant to section
2564(c) (relating to notice and record date).
"Exchange Act." The term shall have the meaning specified in
section 2552 (relating to definitions).
"Executive officer." When used with reference to a
corporation, the president, any vice-president in charge of a
principal business unit, division or function (such as sales,
administration or finance), any other officer who performs a
policy-making function or any other person who performs similar
policy-making functions. Executive officers of subsidiaries
shall be deemed executive officers of the corporation if they
perform such policy-making functions for the corporation.
"Existing shares."
(1) Voting shares which have been beneficially owned
continuously by the same natural person since January 1,
1988.
(2) Voting shares which are beneficially owned by any
natural person or trust, estate, foundation or other similar
entity to the extent the voting shares were acquired solely
by gift, inheritance, bequest, devise or other testamentary
distribution or series of these transactions, directly or
indirectly, from a natural person who had beneficially owned
the voting shares prior to January 1, 1988.
(3) Voting shares which were acquired pursuant to a
stock split, stock dividend, or other similar distribution
described in section 2561(c) (relating to effect of
distributions) with respect to existing shares that have been
beneficially owned continuously since their issuance by the
corporation by the natural person or entity that acquired
them from the corporation or that were acquired, directly or
indirectly, from such natural person or entity, solely
pursuant to a transaction or series of transactions described
in paragraph (2), and that are held at such time by a natural
person or entity described in paragraph (2).
"Proxy." Includes any proxy, consent or authorization.
"Proxy solicitation" or "solicitation of proxies." Includes
any solicitation of a proxy, including a solicitation of a
revocable proxy of the nature and under the circumstances
described in section 2562.1(b)(3) (relating to acquiring person
safe harbor).
"Publicly disclosed or caused to be disclosed." Includes,
but is not limited to, any disclosure (whether or not required
by law) that becomes public made by a person:
(1) with the intent or expectation that such disclosure
become public; or
(2) to another where the disclosing person knows, or
reasonably should have known, that the receiving person was
not under an obligation to refrain from making such
disclosure, directly or indirectly, to the public and such
receiving person does make such disclosure, directly or
indirectly, to the public.
"Voting shares." The term shall have the meaning specified
in section 2552 (relating to definitions).
§ 2562.1. Acquiring person safe harbor.
(a) Nonparticipant.--For the purposes of this subchapter,a
person shall not be deemed an acquiring person, absent
significant other activities indicating that a person should be
deemed an acquiring person, by reason of voting or giving a
proxy or consent as a shareholder of the corporation if the
person is one who:
(1) did not acquire any voting shares of the corporation
with the purpose of changing or influencing control of the
corporation, seeking to acquire control of the corporation or
influencing the outcome of a vote of shareholders under
section 2563 (relating to voting rights of shares acquired in
a control-share acquisition) or in connection with or as a
participant in any agreement, arrangement, relationship,
understanding or otherwise having any such purpose;
(2) if the control-share acquisition were consummated,
would not be a person that has control over the corporation
and will not receive, directly or indirectly, any
consideration from a person that has control over the
corporation other than consideration offered proportionately
to all holders of voting shares of the corporation; and
(3) If a proxy or consent is given, executes a revocable
proxy or consent given without consideration in response to a
proxy or consent solicitation made in accordance with the
applicable rules and regulations under the Exchange Act under
circumstances not then reportable on Schedule 13d under the
Exchange Act (or any comparable or successor report) by the
person who gave the proxy or consent.
(b) Certain holders.--For the purpose of this subchapter, a
person shall not be deemed an acquiring person if such person
holds voting power within any of the ranges specified in the
definition of "control-share acquisition":
(1) in good faith and not for the purpose of
circumventing this subchapter, as an agent, bank, broker,
nominee or trustee for one or more beneficial owners who do
not individually or, if they are a group acting in concert,
as a group have the voting power specified in any of the
ranges in the definition of "control-share acquisition";
(2) in connection with the solicitation of proxies or
consents by or on behalf of the corporation in connection
with shareholder meetings or actions of the corporation; or
(3) as a result of the solicitation of revocable proxies
or consents with respect to voting shares if such proxies or
consents both:
(i) are given without consideration in response to a
proxy or consent solicitation made in accordance with the
applicable rules and regulations under the Exchange Act;
and
(ii) do not empower the holder thereof, whether or
not this power is shared with any other person, to vote
such shares except on the specific matters described in
such proxy or consent and in accordance with the
instructions of the giver of such proxy or consent.
§ 2563. Voting rights of shares acquired in a control-share
acquisition.
(a) General rule.--Control shares shall not have any voting
rights unless a resolution approved by a vote of shareholders of
the registered corporation at an annual or special meeting of
shareholders pursuant to this subchapter restores to the control
shares the same voting rights as other shares of the same class
or series with respect to elections of directors and all other
matters coming before the shareholders. Any such resolution may
be approved only by the affirmative vote of the holders of a
majority of the voting power entitled to vote in two separate
votes as follows:
(1) all the disinterested shares of the corporation; and
(2) all voting shares of the corporation.
(b) Lapse of voting rights.--Voting rights accorded by
approval of a resolution of shareholders shall lapse and be lost
if any proposed control-share acquisition which is the subject
of the shareholder approval is not consummated within 90 days
after shareholder approval is obtained.
(c) Restoration of voting rights.--Any control shares that
do not have voting rights accorded to them by approval of a
resolution of shareholders as provided by subsection (a) or the
voting rights of which lapse pursuant to subsection (b) shall
regain such voting rights on transfer to a person other than the
acquiring person or any affiliate or associate of the acquiring
person (or direct or indirect transferee from the acquiring
person or such affiliate or associate solely pursuant to a
transfer or series of transfers under section 2561(b)(5)(i)
through (vi) (relating to application and effect of subchapter))
unless such shares shall constitute control shares of the other
person, in which case the voting rights of those shares shall
again be subject to this subchapter.
§ 2564. Procedure for establishing voting rights of control
shares.
(a) Special meeting.--A special meeting of the shareholders
of a registered corporation shall be called by the board of
directors of the corporation for the purpose of considering the
voting rights to be accorded to the control shares if an
acquiring person:
(1) files an information statement fully conforming to
section 2565 (relating to information statement of acquiring
person);
(2) makes a request in writing for a special meeting of
the shareholders at the time of delivery of the information
statement;
(3) makes a control-share acquisition or a bona fide
written offer to make a control-share acquisition; and
(4) gives a written undertaking at the time of delivery
of the information statement to pay or reimburse the
corporation for the expenses of a special meeting of the
shareholders.
The special meeting requested by the acquiring person shall be
held on the date set by the board of directors of the
corporation, but in no event later than 50 days after the
receipt of the information statement by the corporation, unless
the corporation and the acquiring person mutually agree to a
later date. If the acquiring person so requests in writing at
the time of delivery of the information statement to the
corporation, the special meeting shall not be held sooner than
30 days after receipt by the corporation of the complete
information statement.
(b) Special meeting not requested.--If the acquiring person
complies with subsection (a)(1) and (3), but no request for a
special meeting is made or no written undertaking to pay or
reimburse the expenses of the meeting is given, the issue of the
voting rights to be accorded to control shares shall be
submitted to the shareholders at the next annual or special
meeting of the shareholders of which notice had not been given
prior to the receipt of such information statement, unless the
matter of the voting rights becomes moot.
(c) Notice and record date.--The notice of any annual or
special meeting at which the issue of the voting rights to be
accorded the control shares shall be submitted to shareholders
shall be given at least ten days prior to the date named for the
meeting and shall be accompanied by:
(1) A copy of the information statement of the acquiring
person.
(2) A copy of any amendment of such information
statement previously delivered to the corporation at least
seven days prior to the date on which such notice is given.
(3) A statement disclosing whether the board of
directors of the corporation recommends approval of,
expresses no opinion and remains neutral toward, recommends
rejection of, or is unable to take a position with respect to
according voting rights to control shares. In determining the
position that it shall take with respect to according voting
rights to control shares, including to express no opinion and
remain neutral or to be unable to take a position with
respect to such issue, the board of directors shall
specifically consider, in addition to any other factors it
deems appropriate, the effect of according voting rights to
control shares upon the interests of employees and of
communities in which offices or other establishments of the
corporation are located.
(4) Any other matter required by this subchapter to be
incorporated into or to accompany the notice of meeting of
shareholders or that the corporation elects to include with
such notice.
Only shareholders of record on the date determined by the board
of directors in accordance with the provisions of section 1763
(relating to determination of shareholders of record) shall be
entitled to notice of and to vote at the meeting to consider the
voting rights to be accorded to control shares.
(d) Special meeting or submission of issue at annual or
special meeting not required.--Notwithstanding subsections (a)
and (b), the corporation is not required to call a special
meeting of shareholders or otherwise present the issue of the
voting rights to be accorded to the control shares at any annual
or special meeting of shareholders unless:
(1) the acquiring person delivers to the corporation a
complete information statement pursuant to section 2565; and
(2) at the time of delivery of such information
statement, the acquiring person has:
(i) entered into a definitive financing agreement or
agreements (which shall not include best efforts, highly
confident or similar undertakings but which may have the
usual and customary conditions including conditions
requiring that the control-share acquisition be
consummated and that the control shares be accorded
voting rights) with one or more financial institutions or
other persons having the necessary financial capacity as
determined by the board of directors of the corporation
in good faith to provide for any amounts of financing of
the control-share acquisition not to be provided by the
acquiring person; and
(ii) delivered a copy of such agreements to the
corporation.
§ 2565. Information statement of acquiring person.
(a) Delivery of information statement.--An acquiring person
may deliver to the registered corporation at its principal
executive office an information statement which shall contain
all of the following:
(1) The identity of the acquiring person and the
identity of each affiliate and associate of the acquiring
person.
(2) A statement that the information statement is being
provided under this section.
(3) The number and class or series of voting shares and
of any other security of the corporation beneficially owned,
directly or indirectly, prior to the control-share
acquisition and at the time of the filing of this statement
by the acquiring person.
(4) The number and class or series of voting shares of
the corporation acquired or proposed to be acquired pursuant
to the control-share acquisition by the acquiring person and
specification of the following ranges of votes that the
acquiring person could cast or direct the casting of relative
to all the votes that would be entitled to be cast in an
election of directors of the corporation that the acquiring
person in good faith believes would result from consummation
of the control-share acquisition:
(i) At least 20% but less than 33 1/3%.
(ii) At least 33 1/3% but less than 50%.
(iii) 50% or more.
(5) The terms of the control-share acquisition or
proposed control-share acquisition, including:
(i) The source of moneys or other consideration and
the material terms of the financial arrangements for the
control-share acquisition and the plans of the acquiring
person for meeting its debt-service and repayment
obligations with respect to any such financing.
(ii) A statement identifying any pension fund of the
acquiring person or of the corporation which is a source
or proposed source of money or other consideration for
the control-share acquisition, proposed control-share
acquisition or the acquisition of any control shares and
the amount of such money or other consideration which has
been or is proposed to be used, directly or indirectly,
in the financing of such acquisition.
(6) Plans or proposals of the acquiring person with
regard to the corporation, including plans or proposals under
consideration to:
(i) Enter into a business combination or
combinations involving the corporation.
(ii) Liquidate or dissolve the corporation.
(iii) Permanently or temporarily shut down any
plant, facility or establishment, or substantial part
thereof, of the corporation, or sell any such plant,
facility or establishment, or substantial part thereof,
to any other person.
(iv) Otherwise sell all or a material part of the
assets of, or merge, consolidate, divide or exchange the
shares of the corporation to or with any other person.
(v) Transfer a material portion of the work,
operations or business activities of any plant, facility
or establishment of the corporation to a different
location or to a plant, facility or establishment owned,
as of the date the information statement is delivered, by
any other person.
(vi) Change materially the management or policies of
employment of the corporation or the policies of the
corporation with respect to labor relations matters,
including, but not limited to, the recognition of or
negotiations with any labor organization representing
employees of the corporation and the administration of
collective bargaining agreements between the corporation
and any such organization.
(vii) Change materially the charitable or community
involvement or contributions or policies, programs or
practices relating thereto of the corporation.
(viii) Change materially the relationship with
suppliers or customers of, or the communities in which
there are operations of, the corporation.
(ix) Make any other material change in the business,
corporate structure, management or personnel of the
corporation.
(7) The funding or other provisions the acquiring person
intends to make with respect to all retiree insurance and
employee benefit plan obligations.
(8) Any other facts that would be substantially likely
to affect the decision of a shareholder with respect to
voting on the control-share acquisition pursuant to section
2563 (relating to voting rights of shares acquired in a
control-share acquisition).
(b) Amendment of information statement.--If any material
change occurs in the facts set forth in the information
statement, including any material increase or decrease in the
number of voting shares of the corporation acquired or proposed
to be acquired by the acquiring person, the acquiring person
shall promptly deliver, to the corporation at its principal
executive office, an amendment to the information statement
fully explaining such material change.
§ 2566. Redemption.
Unless prohibited by the terms of the articles of a
registered corporation in effect before a control-share
acquisition has occurred, the corporation may redeem all control
shares from the acquiring person at the average of the high and
low sales price of shares of the same class and series as such
prices are specified on a national securities exchange, national
quotation system or similar quotation listing service on the
date the corporation provides notice to the acquiring person of
the call for redemption:
(1) at any time within 24 months after the date on which
the acquiring person consummates a control-share acquisition,
if the acquiring person does not, within 30 days after
consummation of the control-share acquisition, properly
request that the issue of voting rights to be accorded
control shares be presented to the shareholders under section
2564(a) or (b) (relating to procedure for establishing voting
rights of control shares); and
(2) at any time within 24 months after the issue of
voting rights to be accorded such shares is submitted to the
shareholders pursuant to section 2564(a) or (b); and
(i) such voting rights are not accorded pursuant to
section 2563(a) (relating to voting rights of shares
acquired in control-share acquisition); or
(ii) such voting rights are accorded and
subsequently lapse pursuant to section 2563(b) (relating
to lapse of voting rights).
§ 2567. Board determinations.
All determinations made by the board of directors of the
registered corporation under this subchapter shall be presumed
to be correct unless shown by clear and convincing evidence that
the determination was not made by the directors in good faith
after reasonable investigation or was clearly erroneous.
SUBCHAPTER H
DISGORGEMENT BY CERTAIN CONTROLLING SHAREHOLDERS
FOLLOWING ATTEMPTS TO ACQUIRE CONTROL
Sec.
2571. Application and effect of subchapter.
2572. Policy and purpose.
2573. Definitions.
2573.1. Controlling person or group safe harbor.
2574. Ownership by corporation of profits resulting from
certain transactions.
2575. Enforcement actions.
§ 2571. 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
transfer of an equity security:
(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
(in printing this act in the Laws of Pennsylvania and the
Pennsylvania Consolidated Statutes, the Legislative
Reference Bureau shall insert here, in lieu of this
statement, the date which is 90 days after the effective
date of this subchapter) in the case of a corporation
which was a registered corporation described in section
2502(1)(i) on (in printing this act in the Laws of
Pennsylvania and the Pennsylvania Consolidated Statutes,
the Legislative Reference Bureau shall insert here, in
lieu of this statement, the effective date of this
subchapter); or
(ii) 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 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, if both the
acquisition and disposition of such equity security were
consummated before October 17, 1989.
(4) Consummated by a person or group who first became a
controlling person or group prior to:
(i) October 17, 1989, if such person or group does
not after such date commence a tender or exchange offer
for or proxy solicitation with respect to voting shares
of the corporation, 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) Constituting:
(i) In the case of a person or group that, as of
October 17, 1989, beneficially owned shares entitling the
person or group to cast at least 20% of the votes that
all shareholders would be entitled to cast in an election
of directors of the corporation:
(A) The disposition of equity securities of the
corporation by the person or group.
(B) Subsequent dispositions of any or all equity
securities of the corporation disposed of by the
person or group where such subsequent dispositions
are effected by the direct purchaser of the
securities from the person or group if, as a result
of the acquisition by the purchaser of the securities
disposed of by the person or group, the purchaser,
immediately following the acquisition, is entitled to
cast at least 20% of the votes that all shareholders
would be entitled to cast in an election of directors
of the corporation.
(ii) The transfer of the beneficial ownership of the
equity security by:
(A) Gift, devise, bequest or otherwise through
the laws of inheritance or descent.
(B) A settlor to a trustee under the terms of a
family, testamentary or charitable trust.
(C) A trustee to a trust beneficiary or a
trustee to a successor trustee under the terms of a
family, testamentary or charitable trust.
(iii) The addition, withdrawal or demise of a
beneficiary or beneficiaries of a family, testamentary or
charitable trust.
(iv) The appointment of a guardian or custodian with
respect to the equity security.
(v) The transfer of the beneficial ownership of the
equity security 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) The transfer of record or the transfer of a
beneficial interest or interests in the equity security
where the circumstances surrounding the transfer clearly
demonstrate that no material change in beneficial
ownership has occurred.
(6) Consummated by:
(i) The corporation or any of its subsidiaries.
(ii) Any savings, stock ownership, stock option or
other benefit plan of the corporation or any of its
subsidiaries, or any fiduciary with respect to any such
plan when acting in such capacity, or by any participant
in any such plan with respect to any equity security
acquired pursuant to any such plan or any equity security
acquired as a result of the exercise or conversion of any
equity security (specifically including any options,
warrants or rights) issued to such participant by the
corporation pursuant to any such plan.
(7) (i) where the acquisition of the equity security
has been approved by a resolution adopted prior to the
acquisition of the equity security; or
(ii) where the disposition of the equity security
has been approved by a resolution adopted prior to the
disposition of the equity security if the equity security
at the time of the adoption of the resolution is
beneficially owned by a person or group that is or was a
controlling person or group with respect to the
corporation and is in control of the corporation if:
the resolution in either subparagraph (i) or (ii) is approved
by the board of directors and ratified by the affirmative
vote of the shareholders entitled to cast at least a majority
of the votes which all shareholders are entitled to cast
thereon and identifies the specific person or group that
proposes such acquisition or disposition, the specific
purpose of such acquisition or disposition and the specific
number of equity securities that are proposed to be acquired
or disposed of by such person or group.
(c) Effect of distributions.--For purposes of this
subchapter, equity securities acquired by a holder as a result
of a stock split, stock dividend or other similar distribution
by a corporation of equity securities issued by the corporation
not involving a sale of the securities 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 existing equity security with respect to
which the equity securities were subsequently distributed by the
corporation.
(d) Formation of group.--For the purposes of this
subchapter, if there is no change in the beneficial ownership of
an equity security held by a person, then the formation of or
participation in a group involving the person shall not be
deemed to constitute an acquisition of the beneficial ownership
of such equity security by the group.
§ 2572. Policy and purpose.
(a) General rule.--The purpose of this subchapter is to
protect certain registered corporations and legitimate interests
of various groups related to such corporations from certain
manipulative and coercive actions. Specifically, this subchapter
seeks to:
(1) Protect registered corporations from being exposed
to and paying "greenmail."
(2) Promote a stable relationship among the various
parties involved in registered corporations, including the
public whose confidence in the future of a corporation tends
to be undermined when a corporation is put "in play."
(3) Ensure that speculators who put registered
corporations "in play" do not misappropriate corporate values
for themselves at the expense of the corporation and groups
affected by corporate actions.
(4) Discourage such speculators from putting registered
corporations "in play" through any means, including, but not
limited to, offering to purchase at least 20% of the voting
shares of the corporation or threatening to wage or waging a
proxy contest in connection with or as a means toward or part
of a plan to acquire control of the corporation, with the
effect of reaping short-term speculative profits.
Moreover, this subchapter recognizes the right and obligation of
the Commonwealth to regulate and protect the corporations it
creates from abuses resulting from the application of its own
laws affecting generally corporate governance and particularly
director obligations, mergers and related matters. Such laws,
and the obligations imposed on directors or others thereunder,
should not be the vehicles by which registered corporations are
manipulated in certain instances for the purpose of obtaining
short-term profits.
(b) Limitations.--The purpose of this subchapter is not to
affect legitimate shareholder activity that does not involve
putting a corporation "in play" or involve seeking to acquire
control of the corporation. Specifically, the purpose of this
subchapter is not to:
(1) curtail proxy contests on matters properly submitted
for shareholder action under applicable State or other law,
including, but not limited to, certain elections of
directors, corporate governance matters such as cumulative
voting or staggered boards, or other corporate matters such
as environmental issues or conducting business in a
particular country if, in any such instance, such proxy
contest is not utilized in connection with or as a means
toward or part of a plan to put the corporation "in play" or
to seek to acquire control of the corporation; or
(2) affect the solicitation of proxies or consents by or
on behalf of the corporation in connection with shareholder
meetings or actions of the corporation.
§ 2573. Definitions.
The following words and phrases when used in this subchapter
shall have the meanings given to them in this section unless the
context clearly indicates otherwise:
"Beneficial owner." The term shall have the meaning
specified in section 2552 (relating to definitions).
"Control." The power, whether or not exercised, to direct or
cause the direction of the management and policies of a person,
whether through the ownership of voting shares, by contract or
otherwise.
"Controlling person or group."
(1) (i) A person or group who has acquired, offered to
acquire or, directly or indirectly, publicly disclosed or
caused to be disclosed (other than for the purpose of
circumventing the intent of this subchapter) the
intention of acquiring voting power over voting shares of
a registered 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; or
(ii) a person or group who has otherwise, directly
or indirectly, publicly disclosed or caused to be
disclosed (other than for the purpose of circumventing
the intent of this subchapter) that it may seek to
acquire control of a corporation through any means.
(2) Two or more persons acting in concert, whether or
not pursuant to an express agreement, arrangement,
relationship or understanding, including as a partnership,
limited partnership, syndicate, or through any means of
affiliation whether or not formally organized, for the
purpose of acquiring, holding, voting or disposing of equity
securities of a corporation shall be deemed a group for
purposes of this subchapter. Notwithstanding any other
provision of this subchapter to the contrary, and regardless
of whether a group has been deemed to acquire beneficial
ownership of an equity security under this subchapter, each
person who participates in a group, where such group is a
controlling person or group as defined in this subchapter,
shall also be deemed to be a controlling person or group for
the purposes of this subchapter, and a direct or indirect
transferee solely pursuant to a transfer or series of
transfers under section 2571(b)(5)(ii) through (vi) (relating
to application and effect of subchapter) of an equity
security acquired from any person or group that is or becomes
a controlling person or group, shall be deemed, with respect
to such equity security, to be acting in concert with the
controlling person or group, and shall be deemed to have
acquired such equity security in the same transaction (at the
same time, in the same manner and from the same person) as
its acquisition by the controlling person or group.
"Equity security." Any security, including all shares, stock
or similar security, and any security convertible into (with or
without additional consideration) or exercisable for any such
shares, stock or similar security, or carrying any warrant,
right or option to subscribe to or purchase such shares, stock
or similar security or any such warrant, right, option or
similar instrument.
"Exchange Act." The term shall have the meaning specified in
section 2552 (relating to definitions).
"Profit." The positive value, if any, of the difference
between:
(1) the consideration received from the disposition of
equity securities less only the usual and customary broker's
commissions actually paid in connection with such
disposition; and
(2) the consideration actually paid for the acquisition
of such equity securities plus only the usual and customary
broker's commissions actually paid in connection with such
acquisition.
"Proxy." Includes any proxy, consent or authorization.
"Proxy solicitation" or "solicitation of proxies." Includes
any solicitation of a proxy, including a solicitation of a
revocable proxy of the nature and under the circumstances
described in section 2573.1(b)(3) (relating to controlling
person or group safe harbor).
"Publicly disclosed or caused to be disclosed." The term
shall have the meaning specified in section 2562 (relating to
definitions).
"Transfer." Acquisition or disposition.
"Voting shares." The term shall have the meaning specified
in section 2552 (relating to definitions).
§ 2573.1. Controlling person or group safe harbor.
(a) Nonparticipant.--For the purpose of this subchapter, a
person or group shall not be deemed a controlling person or
group, absent significant other activities indicating that a
person or group should be deemed a controlling person or group,
by reason of voting or giving a proxy or consent as a
shareholder of the corporation if the person or group is one who
or which:
(1) did not acquire any voting shares of the corporation
with the purpose of changing or influencing control of the
corporation or seeking to acquire control of the corporation
or in connection with or as a participant in any agreement,
arrangement, relationship, understanding or otherwise having
any such purpose;
(2) if control were acquired, would not be a person or
group or a participant in a group that has control over the
corporation and will not receive, directly or indirectly, any
consideration from a person or group that has control over
the corporation other than consideration offered
proportionately to all holders of voting shares of the
corporation; and
(3) if a proxy or consent is given, executes a revocable
proxy or consent given without consideration in response to a
proxy or consent solicitation made in accordance with the
applicable rules and regulations under the Exchange Act under
circumstances not then reportable on Schedule 13d under the
Exchange Act (or any comparable or successor report) by the
person or group who gave the proxy or consent.
(b) Certain holders.--For the purpose of this subchapter, a
person or group shall not be deemed a controlling person or
group under subparagraph (1)(i) of the definition of
"controlling person or group" in section 2573 (relating to
definitions) if such person or group holds voting power:
(1) in good faith and not for the purpose of
circumventing this subchapter, as an agent, bank, broker,
nominee or trustee for one or more beneficial owners who do
not individually or, if they are a group acting in concert,
as a group have the voting power specified in subparagraph
(1)(i) of the definition of "controlling person or group" in
section 2573;
(2) in connection with the solicitation of proxies or
consents by or on behalf of the corporation in connection
with shareholder meetings or actions of the corporation; or
(3) in the amount specified in subparagraph (1)(i) of
the definition of "controlling person or group" in section
2573 as a result of the solicitation of revocable proxies or
consents with respect to voting shares if such proxies or
consents both:
(i) are given without consideration in response to a
proxy or consent solicitation made in accordance with the
applicable rules and regulations under the Exchange Act;
and
(ii) do not empower the holder thereof, whether or
not this power is shared with any other person, to vote
such shares except on the specific matters described in
such proxy or consent and in accordance with the
instructions of the giver of such proxy or consent.
§ 2574. Ownership by corporation of profits resulting from
certain transactions.
Any profit realized by any person or group who is or was a
controlling person or group with respect to a registered
corporation from the disposition of any equity security of the
corporation to any person (including under Subchapter E
(relating to control transactions) or otherwise), including,
without limitation, to the corporation (including under
Subchapter G (relating to control-share acquisitions) or
otherwise) or to another member of the controlling person or
group, shall belong to and be recoverable by the corporation
where the profit is realized by such person or group:
(1) from the disposition of the equity security within
18 months after the person or group obtained the status of a
controlling person or group; and
(2) the equity security had been acquired by the
controlling person or group within 24 months prior to or 18
months subsequent to the obtaining by the person or group of
the status of a controlling person or group.
Any transfer by a controlling person or group of the ownership
of any equity security may be suspended on the books of the
corporation, and certificates representing such securities may
be duly legended, to enforce the rights of the corporation under
this subchapter.
§ 2575. Enforcement actions.
(a) Venue.--Actions to recover any profit due under this
subchapter may be commenced in any court of competent
jurisdiction by the registered corporation issuing the equity
security or by any holder of any equity security of the
corporation in the name and on behalf of the corporation if the
corporation fails or refuses to bring the action within 60 days
after written request by a holder or shall fail to prosecute the
action diligently. If a judgment requiring the payment of any
such profits is entered, the party bringing such action shall
recover all costs, including reasonable attorney fees, incurred
in connection with enforcement of this subchapter.
(b) Jurisdiction.--By engaging in the activities necessary
to become a controlling person or group and thereby becoming a
controlling person or group, the person or group and all persons
participating in the group consent to personal jurisdiction in
the courts of this Commonwealth for enforcement of this
subchapter. Courts of this Commonwealth may exercise personal
jurisdiction over any controlling person or group in actions to
enforce this subchapter. The terms of this section shall be
supplementary to the provisions of 42 Pa.C.S. §§ 5301 (relating
to persons) through 5322 (relating to bases of personal
jurisdiction over persons outside this Commonwealth) and, for
the purpose of this section, 42 Pa.C.S. § 5322(7)(iv) shall be
deemed to include a controlling person or group as defined in
section 2573 (relating to definitions). Service of process may
be made upon such persons outside this Commonwealth in
accordance with the procedures specified by 42 Pa.C.S. § 5323
(relating to service of process on persons outside this
Commonwealth).
(c) Limitation.--Any action to enforce this subchapter shall
be brought within two years from the date any profit recoverable
by the corporation was realized.
SUBCHAPTER I
SEVERANCE COMPENSATION FOR EMPLOYEES TERMINATED
FOLLOWING CERTAIN CONTROL-SHARE ACQUISITIONS
Sec.
2581. Definitions.
2582. Severance compensation.
2583. Enforcement and remedies.
§ 2581. Definitions.
The following words and phrases when used in this subchapter
shall have the meanings given to them in this section unless the
context clearly indicates otherwise:
"Acquiring person." The term shall have the meaning
specified in section 2562 (relating to definitions).
"Control-share acquisition." The term shall have the meaning
specified in section 2562.
"Control-share approval."
(1) The occurrence of both:
(i) a control-share acquisition to which Subchapter
G (relating to control-share acquisitions) applies with
respect to a registered corporation described in section
2502(1)(i) (relating to registered corporation status) by
an acquiring person; and
(ii) the according by such registered corporation of
voting rights pursuant to section 2563(a) (relating to
voting rights of shares acquired in a control-share
acquisition) in connection with such control-share
acquisition to control shares of the acquiring person.
(2) The term shall also include a control-share
acquisition effected by an acquiring person, other than a
control-share acquisition described in section 2561(b)(3),
(4) or (5) (other than subparagraph 2561(b)(5)(vii))
(relating to application and effect of subchapter) if the
control-share acquisition:
(i) (A) occurs primarily in response to the actions
of an other acquiring person where Subchapter G (relating
to control-share acquisitions) applies to a control-share
acquisition or proposed control-share acquisition by such
other acquiring person; and
(B) either:
(I) pursuant to an agreement or plan
described in section 2561(b)(5)(vii);
(II) after adoption of an amendment to the
articles of the registered corporation pursuant
to section 2561(b)(2)(ii); or
(III) after reincorporation of the
registered corporation in another jurisdiction;
if the agreement or plan is approved or the amendment or
reincorporation is adopted by the board of directors of the
corporation during the period commencing after the
satisfaction by such other acquiring person of the
requirements of section 2564(a) or (b) (relating to procedure
for establishing voting rights of control shares) and ending
90 days after the date such issue is voted on by the
shareholders, is withdrawn from consideration or becomes
moot; or
(ii) is consummated in any manner by a person who
satisfied, within two years prior to such acquisition,
the requirements of section 2564(a) or (b).
"Control shares." The term shall have the meaning specified
in section 2562.
"Eligible employee." Any employee of a registered
corporation (or any subsidiary thereof) if:
(1) the registered corporation was the subject of a
control-share approval;
(2) the employee was an employee of such corporation (or
any subsidiary thereof) within 90 days before or on the day
of the control-share approval and had been so employed for at
least two years prior thereto; and
(3) the employment of the employee is in this
Commonwealth.
"Employee." Any person lawfully employed by an employer.
"Employment in this Commonwealth."
(1) The entire service of an employee, performed inside
and outside of this Commonwealth, if the service is localized
in this Commonwealth.
(2) Service shall be deemed to be localized in this
Commonwealth if:
(i) the service is performed entirely inside this
Commonwealth; or
(ii) the service is performed both inside and
outside of this Commonwealth but the service performed
outside of this Commonwealth is incidental to the service
of the employee inside this Commonwealth, as where such
service is temporary or transitory in nature or consists
of isolated transactions.
(3) Employment in this Commonwealth shall also include
service of the employee, performed inside and outside of this
Commonwealth, if the service is not localized in any state,
but some of the service is performed in this Commonwealth,
and:
(i) the base of operations of the employee is in
this Commonwealth;
(ii) there is no base of operations, and the place
from which such service is directed or controlled is in
this Commonwealth; or
(iii) the base of operations of the employee or
place from which such service is directed or controlled
is not in any state in which some part of the service is
performed, but the residence of the employee is in this
Commonwealth.
"Minimum severance amount." With respect to an eligible
employee, the weekly compensation of the employee multiplied by
the number of the completed years of service of the employee, up
to a maximum of 26 times the weekly compensation of the
employee.
"Subsidiary." The term shall have the meaning specified in
section 2552 (relating to definitions).
"Termination of employment." The layoff of at least six
months, or the involuntary termination of an employee, except
that any employee employed in a business operation who is
continued or employed or offered employment (within 60 days) by
the purchaser of such business operation, on substantially the
same terms (including geographic location) as those pursuant to
which the employee was employed in such business operation,
shall not be deemed to have been laid off or involuntarily
terminated for the purposes of this subchapter by such transfer
of employment to the purchaser, but the purchaser shall make the
lump-sum payment under this subchapter in the event of a layoff
of at least six months or the involuntary termination of the
employee within the period specified in section 2582 (relating
to severance compensation).
"Weekly compensation." The average regular weekly
compensation of an employee based on normal schedule of hours in
effect for such employee over the last three months preceding
the control-share approval.
Act text part 2
"Year of service." Each full year during which the employee
has been employed by the employer.
§ 2582. Severance compensation.
(a) General rule.--Any eligible employee whose employment is
terminated, other than for willful misconduct connected with the
work of the employee, within 90 days before the control-share
approval with respect to the registered corporation if such
termination was pursuant to an agreement, arrangement or
understanding, whether formal or informal, with the acquiring
person whose control shares were accorded voting rights in
connection with such control-share approval or within 24
calendar months after the control-share approval with respect to
the registered corporation shall receive a one-time, lump-sum
payment from the employer equal to:
(1) the minimum severance amount with respect to the
employee; less
(2) any payments made to the employee by the employer
due to termination of employment, whether pursuant to any
contract, policy, plan or otherwise, but not including any
final wage payments to the employee or payments to the
employee under pension, savings, retirement or similar plans.
(b) Limitation.--If the amount specified in subsection
(a)(2) is at least equal to the amount specified in subsection
(a)(1), no payment shall be required to be made under this
subchapter.
(c) Due date of payment.--Severance compensation under this
subchapter to eligible employees shall be made within one
regular pay period after the last day of work of the employee,
in the case of a layoff known at such time to be at least six
months or an involuntary termination, and in all other cases
within 30 days after the eligible employee first becomes
entitled to compensation under this subchapter.
§ 2583. Enforcement and remedies.
(a) Notice.--Within 30 days of the control-share approval,
the employer shall provide written notice to each eligible
employee and to the collective bargaining representative, if
any, of the rights of eligible employees under this subchapter.
(b) Remedies.--In the event any eligible employee is denied
a lump-sum payment in violation of this subchapter, or the
employer fails to provide the notice required by subsection (a),
the employee on his or her own behalf or on behalf of other
employees similarly situated, or the collective bargaining
representative, if any, on the behalf of the employee, may, in
addition to all other remedies available at law or in equity,
bring an action to remedy such violation. In any such action,
the court may order such equitable or legal relief as it deems
just and proper.
(c) Civil penalty.--In the case of violations of subsection
(a), the court may order the employer to pay to each employee
who was subject to a termination of employment and entitled to
severance compensation under this subchapter a civil penalty not
to exceed $75 per day for each business day that notice was not
provided to such employee.
(d) Successor liability.--The rights under this subchapter
of any individual who was an eligible employee at the time of
the control-share approval shall vest at that time, and in any
action based on a violation of this subchapter, recovery may be
secured against:
(1) a merged, consolidated or resulting domestic or
foreign corporation or other successor employer; or
(2) the corporation after its status as a registered
corporation has terminated;
notwithstanding any provision of law to the contrary.
SUBCHAPTER J
BUSINESS COMBINATION TRANSACTIONS - LABOR CONTRACTS
Sec.
2585. Application and effect of subchapter.
2586. Definitions.
2587. Labor contracts preserved in business combination
transactions.
2588. Civil remedies.
§ 2585. Application and effect of subchapter.
(a) General rule.--Except as otherwise provided in this
section, this subchapter shall apply to every business
combination transaction relating to a business operation if such
business operation was owned by a registered corporation (or any
subsidiary thereof) at the time of a control-share approval with
respect to the corporation (regardless of the fact, if such be
the case, that such operation after the control-share approval
is owned by the registered corporation or any other person).
(b) Exceptions.--This subchapter shall not apply to:
(1) Any business combination transaction occurring more
than five years after the control-share approval of the
registered corporation.
(2) Any business operation located other than in this
Commonwealth.
§ 2586. Definitions.
The following words and phrases when used in this subchapter
shall have the meanings given to them in this section unless the
context clearly indicates otherwise:
"Business combination transaction." Any merger or
consolidation, sale, lease, exchange or other disposition, in
one transaction or a series of transactions, whether affecting
all or substantially all the property and assets, including its
good will, of the business operation that is the subject of the
labor contract referred to in section 2587 (relating to labor
contracts preserved in business combination transactions) or any
transfer of a controlling interest in such business operation.
"Control-share approval." The term shall have the meaning
specified in section 2581 (relating to definitions).
"Covered labor contract." Any labor contract if such
contract:
(1) covers persons engaged in employment in this
Commonwealth;
(2) was negotiated by a labor organization or by a
collective bargaining agent or other representative;
(3) relates to a business operation that was owned by
the registered corporation (or any subsidiary thereof) at the
time of the control-share approval with respect to such
corporation; and
(4) was in effect and covered such business operation
and such employees at the time of such control-share
approval.
"Employee" and "employment in this Commonwealth." The terms
shall have the meanings specified in section 2581.
"Subsidiary." The term shall have the meaning specified in
section 2552 (relating to definitions).
§ 2587. Labor contracts preserved in business combination
transactions.
No business combination transaction shall result in the
termination or impairment of the provisions of any covered labor
contract, and the contract shall continue in effect pursuant to
its terms until it is terminated pursuant to any termination
provision contained therein, or until otherwise agreed upon by
the parties to such contract or their successors.
§ 2588. Civil remedies.
(a) General rule.--In the event that an employee is denied
or fails to receive wages, benefits or wage supplements or
suffers any contractual loss as a result of a violation of this
subchapter, the employee on his or her own behalf or on behalf
of other employees similarly situated, or the labor organization
or collective bargaining agent party to the labor contract, may,
in addition to all other remedies available at law or in equity,
bring an action in any court of competent jurisdiction to
recover such wages, benefits, wage supplements or contractual
losses and to enjoin the violation of this subchapter.
(b) Successor liability.--The rights under this subchapter
of any employee at the time of the control-share approval shall
vest at that time, and in any action based on a violation of
this subchapter, recovery may be secured against:
(1) a merged, consolidated or resulting domestic or
foreign corporation or other successor employer; or
(2) the corporation after its status as a registered
corporation has terminated;
notwithstanding any provision of law to the contrary.
Section 7. The provisions of this act are severable. If any
provision of this act or its application to any person or
circumstance is held invalid, the remainder of this act, and the
application of such provision to other persons and
circumstances, shall not be affected thereby.
Section 8. (a) Nothing contained in this amendatory act
shall be deemed to affect, modify or change in any manner
whatsoever the rights, obligations or duties of, or the
standards pertaining to, any trustee of any Commonwealth or
municipal pension system or the actions, activities or
investment strategies of any such trustee with respect to any
assets of any such pension system.
(b) A director shall not be held liable for taking or
omitting to take any action permitted by 15 Pa.C.S. § 511(g)
(relating to standard of care and justifiable reliance), 1721(j)
(relating to board of directors), 2561(b)(2) (relating to
application and effect of subchapter) or 2571 (b)(2) (relating
to application and effect of subchapter), it being the intention
of this act that any such director may exercise absolute
discretion in taking or omitting to take any such action. Other
than section 5, nothing contained in this amendatory act shall
be construed as having, or be deemed to have, any effect on the
existing practice under Subchapter E of Chapter 25 or the
interpretation, construction, scope or applicability of
Subchapter E of Chapter 25 or as expressing any agreement or
disagreement with any court interpretation relating to
Subchapter E of Chapter 25. Further, nothing in this amendatory
act shall be construed as having, or be deemed to have, any
effect on the interpretation, construction, scope or
applicability of any provision of this title, specifically
including sections 511(b) and (c) (relating to standard of care
and justifiable reliance) and 1721(c) and (d) (relating to board
of directors), that are not explicitly amended by this
amendatory act.
Section 9. This act shall take effect immediately.
APPROVED--The 27th day of April, A. D. 1990.
THOMAS J. RIDGE
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