2010 Pennsylvania Code
Title 15 - CORPORATIONS AND UNINCORPORATED ASSOCIATIONS
Chapter 25 - Registered Corporations
2571 - Application and effect of subchapter.

                               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.
     2574.  Controlling person or group safe harbor.
     2575.  Ownership by corporation of profits resulting from
            certain transactions.
     2576.  Enforcement actions.

        Enactment.  Subchapter H was added April 27, 1990, P.L.129,
     No.36, effective immediately.
        Cross References.  Subchapter H is referred to in sections
     1715, 1903, 1924, 1953 of this title.
     § 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
            July 26, 1990, in the case of a corporation:
                    (A)  which on April 27, 1990, was a registered
                corporation described in section 2502(1)(i); and
                    (B)  did not on that date have outstanding one or
                more classes or series of preference shares entitled,
                upon the occurrence of a default in the payment of
                dividends or another similar contingency, to elect a
                majority of the members of the board of directors (a
                bylaw adopted on or before July 26, 1990, by a
                corporation excluded from the scope of this
                subparagraph by this clause shall be ineffective
                unless ratified under subparagraph (ii));
                (ii)  the bylaws of which explicitly provide that
            this subchapter shall not be applicable to the
            corporation by amendment ratified by the board of
            directors on or after December 19, 1990, and on or before
            March 19, 1991, in the case of a corporation:
                    (A)  which on April 27, 1990, was a registered
                corporation described in section 2502(1)(i);
                    (B)  which on that date had outstanding one or
                more classes or series of preference shares entitled,
                upon the occurrence of a default in the payment of
                dividends or another similar contingency, to elect a
                majority of the members of the board of directors;
                and
                    (C)  the bylaws of which on that date contained a
                provision described in subparagraph (i); or
                (iii)  in any other case, the articles of which
            explicitly provide that this subchapter shall not be
            applicable to the corporation by a provision included in
            the original articles, or by an articles amendment
            adopted at any time while it is a corporation other than
            a registered corporation described in section 2502(1)(i)
            or on or before 90 days after the corporation first
            becomes a registered corporation described in section
            2502(1)(i).
            (3)  Consummated before October 17, 1989, 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.
                (iii)  A person engaged in business as an underwriter
            of securities who acquires the equity securities directly
            from the corporation or an affiliate or associate, as
            defined in section 2552 (relating to definitions), of the
            corporation through his participation in good faith in a
            firm commitment underwriting registered under the
            Securities Act of 1933.
            (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.
            (8)  Acquired at any time by a person or group who first
        became a controlling person or group:
                (i)  after April 27, 1990; and
                (ii)  (A)  at a time when this subchapter was or is
                not applicable to the corporation; or
                    (B)  on or before ten business days after the
                first public announcement by the corporation that
                this subchapter is applicable to the corporation, if
                this subchapter was not applicable to the corporation
                on July 27, 1990.
        (c)  Effect of distributions.--For purposes of this
     subchapter, 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.
     (Dec. 19, 1990, P.L.834, No.198, eff. imd.)

        1990 Amendment.  Act 198 amended subsec. (b)(2) and added
     subsec. (b)(6)(iii) and (8).
        Liability of Directors.  Section 8(b) of Act 36 provided that
     a director shall not be held liable for taking or omitting to
     take any action permitted by section 2571(b)(2), it being the
     intention of Act 36 that any such director may exercise absolute
     discretion in taking or omitting to take any such action.
        Cross References.  Section 2571 is referred to in section
     2573 of this title.