The opinion of the court was delivered by: BARD
The case was originally before me on plaintiff's motion for a preliminary injunction prohibiting defendant from enacting, attempting to enact, or permitting its shareholders to vote upon a proposed new article to the by-laws of the defendant authorizing its board of directors to grant the options in question, on the ground that such a by-law was illegal, and on defendant's motion to dismiss the complaint. On July 9, 1943, both motions were denied. 50 F.Supp. 621.
The proposed new article to the by-laws was duly adopted by the shareholders of defendant, and a hearing was had on plaintiff's complaint, which alleged that the granting of the options as a bonus to certain executive and administrative employees of defendant under the terms and conditions prescribed by the board of directors was illegal. On October 8, 1943, I decided that the granting of the proposed options should be enjoined on the ground that the value of the proposed bonuses bore no reasonable relation to the services to be rendered by the employees to whom they were to be given, principally because these employees undertook no obligation to continue in defendant's employ and gave no other consideration in return therefor. 52 F.Supp. 125.
In order to meet these difficulties, the board of directors revised the terms and conditions under which the options were to be granted and, on the basis of the new plan proposed, moved to dissolve the injunction.
On the basis of the entire record in this matter to date, I make the following special finding of fact:
1. Defendant is a corporation organized under the laws of the Commonwealth of Pennsylvania.
2. Plaintiff is a holder of common shares of defendant corporation, and is a resident of the State of New York.
3. The amount in controversy exceeds $3,000 exclusive of interest and costs.
4. On july 13, 1943 a meeting of the shareholders of defendant was held for the purpose, inter alia, of considering the adoption of a proposed new article to the by-laws of defendant authorizing it to "grant to such of the Company's executive and administrative employees (including officers) as the Board of Directors may determine, options, expiring five years from their issuance and not transferable except on the death of the holder, to purchase an aggregate of not in excess of 300,000 authorized and unissued shares of Common Stock of the Company" at a price equal to 125% of the market price of such stock at the time of the granting of the options.
5. At this meeting a total of approximately 67% of the outstanding votes was cast in favor of adoption of the by-law and approximately 5% against its adoption.
6. The board of directors thereupon approved a plan to grant to 160 specified executive and administrative employees options to purchase the entire 300,000 shares.
7. The options provided that their holders were entitled to purchase a stated number of shares of the defendant at any time within five years from their issuance at a price equal to 125% of the market price on the date of their issuance; that they were not transferable except by operation of law upon the death of the holder, in which event they were exercisable by the representatives of the deceased holder; and that the options should not be exercisable after the employment of the optionees by defendant had been discontinued unless otherwise specified by the board of directors.
8. Under the terms of the original plan, the optionees were not required to obligate themselves to remain ...