13.1-727 - Exceptions. - Virginia Statutes

§ 13.1-727. Exceptions.

A. The voting requirements set forth in § 13.1-726 do not apply to aparticular affiliated transaction if the conditions specified in either ofthe following subdivisions are met:

1. The affiliated transaction has been approved by a majority of thedisinterested directors; or

2. In the affiliated transaction consideration will be paid to the holders ofeach class or series of voting shares and the following conditions will bemet:

a. The aggregate amount of the cash and the fair market value as of thevaluation date of consideration other than cash to be received per share byholders of each class or series of voting shares in such affiliatedtransaction is at least equal to the highest of the following:

(1) If applicable, the highest per share price, including any brokeragecommissions, transfer taxes, and soliciting dealers' fees paid by theinterested shareholder for any shares of such class or series acquired by it(i) within the two-year period immediately preceding the determination dateor (ii) in the transaction in which it became an interested shareholder,whichever is higher, plus, in either case, interest compounded annually fromthe earliest date on which such highest per share acquisition price was paid,being the "share acquisition date," through the date the affiliatedtransaction is effected at the rate for one-year United States Treasuryobligations from time to time in effect, less the aggregate amount of anycash dividends paid, and the market value of any dividends paid other than incash, per share of such class or series, since the share acquisition date, upto the amount of such interest;

(2) The fair market value per share of such class or series on theannouncement date or on the determination date, whichever is higher being the"measuring date," plus, in either case, interest compounded annually fromthe measuring date through the date the affiliated transaction is effected atthe rate for one-year United States Treasury obligations from time to time ineffect, less the aggregate amount of any cash dividends paid, and the marketvalue of any dividends paid other than in cash, per share of such class orseries, since the measuring date, up to the amount of such interest;

(3) If applicable, the price per share equal to the per share amountdetermined pursuant to subdivision 2 a (2) of this subsection, multiplied bythe ratio of (i) the highest per share price including any brokeragecommissions, transfer taxes and soliciting dealers' fees paid by theinterested shareholder for any shares of such class or series acquired by itwithin the two-year period immediately preceding the determination date to(ii) the fair market value per share of such class or series on the first dayin such two-year period on which the interested shareholder acquired anyshares of such class or series; and

(4) If applicable, the highest preferential amount, if any, per share towhich the holders of such class or series are entitled in the event of anyvoluntary or involuntary dissolution of the corporation;

b. The consideration to be received by holders of outstanding shares shall bein cash or in the same form as the interested shareholder has previously paidfor shares of the same class or series and if the interested shareholder haspaid for shares with varying forms of consideration, the form of theconsideration will be either cash or the form used to acquire the largestnumber of shares of such class or series previously acquired by theinterested shareholder;

c. During such portion of the three-year period preceding the announcementdate that such interested shareholder has been an interested shareholder,except as approved by a majority of the disinterested directors:

(1) There shall have been no failure to declare and pay at the regular datetherefor any full periodic dividends, whether or not cumulative, on anyoutstanding shares of the corporation;

(2) There shall have been (i) no reduction in the annual rate of dividendspaid on any class or series of voting shares, except as necessary to reflectany subdivision of the class or series, and (ii) an increase in such annualrate of dividends as necessary to reflect any reclassification, including anyreverse stock split, recapitalization, reorganization, or similar transactionthat has the effect of reducing the number of outstanding shares of the classor series; and

(3) Such interested shareholder shall not have become the beneficial owner ofany additional voting shares except as part of the transaction that resultsin such interested shareholder becoming an interested shareholder;

d. During such portion of the three-year period preceding the announcementdate that such interested shareholder has been an interested shareholder,except as approved by a majority of the disinterested directors, suchinterested shareholder shall not have received the benefit, directly orindirectly (except proportionately as a shareholder), of any loans, advances,guarantees, pledges, or other financial assistance or any tax credits orother tax advantages provided by the corporation, whether in anticipation ofor in connection with such affiliated transaction or otherwise; and

e. Except as otherwise approved by a majority of the disinterested directors,a proxy or information statement describing the affiliated transaction andcomplying with the requirements of the Securities Exchange Act of 1934 andthe rules and regulations thereunder (or any subsequent provisions replacingsuch Act, rules, or regulations) is mailed to holders of voting shares of thecorporation at least 25 days before the consummation of such affiliatedtransaction, whether or not such proxy or information statement is requiredto be mailed pursuant to such Act, rules, regulations, or subsequentprovisions.

B. The provisions of this article do not apply to a particular affiliatedtransaction if the conditions specified in any one of the followingsubdivisions are met:

1. The affiliated transaction is with (i) an interested shareholder who hasbeen an interested shareholder continuously or who would have been such butfor the unilateral action of the corporation since the latest of (a) January26, 1988, (b) the date the corporation first became subject to this articleby virtue of its having 300 shareholders of record, or (c) the date suchperson became an interested shareholder with the prior or contemporaneousapproval of a majority of the disinterested directors, (ii) any person whobecomes an interested shareholder as a result of acquiring shares from aperson specified in (i) of this subdivision by gift, testamentary bequest orthe laws of descent and distribution or in a transaction in whichconsideration was not exchanged and who continues thereafter to be aninterested shareholder, or who would have so continued but for the unilateralaction of the corporation, (iii) a person who became an interestedshareholder inadvertently or as a result of the unilateral action of thecorporation and who, as soon as practicable thereafter, divested beneficialownership of sufficient shares so that such person ceased to be an interestedshareholder, and who would not, at any time within the three-year periodimmediately preceding the announcement date have been an interestedshareholder but for such inadvertency or the unilateral action of thecorporation, or (iv) an interested shareholder whose acquisition of votingshares making such person an interested shareholder was approved by amajority of the disinterested directors prior to such shareholder'sdetermination date.

2. The corporation does not have more than 300 shareholders of record, unlessthe foregoing results from action taken by or on behalf of an interestedshareholder or a transaction in which a person becomes an interestedshareholder.

3. The corporation is an investment company registered under the InvestmentCompany Act of 1940.

4. The corporation's articles of incorporation initially filed with theCommission expressly provide that the corporation shall not be governed bythis article.

5. The corporation, by action of its shareholders, adopts an amendment to itsarticles of incorporation or bylaws expressly electing not to be governed bythis article, provided that, in addition to any other vote required by law,such amendment to the articles of incorporation or bylaws shall be approvedby the affirmative vote of a majority of the shares entitled to vote that arenot owned by an interested shareholder. An amendment adopted pursuant to thissubdivision shall not be effective until 18 months after the date suchamendment was approved by the shareholders and shall not apply to anyaffiliated transaction between such corporation and any person who became aninterested shareholder of such corporation on or prior to the date of suchamendment. A bylaw amendment adopted pursuant to this subdivision shall notbe further amended by the board of directors. In the event the articles ofincorporation or bylaws are subsequently amended to eliminate a prioramendment electing not to be governed by this article, such subsequentamendment shall not restrict an affiliated transaction between thecorporation and any person who became an interested shareholder at a timeafter such prior amendment became effective and who continued to be aninterested shareholder immediately before and immediately after the adoptionof such subsequent amendment, provided such person thereafter remains aninterested shareholder continuously, or would have so remained but for theunilateral action of the corporation.

(1985, c. 522; 1988, c. 442; 2005, c. 765.)