and restrain action approved by the board of directors, to establish that such action transcends the point where the will of the majority may properly be imposed on the minority. Unless this be so, the floodgates would be opened to a surge of litigation by which the courts would be called upon to review the action of corporate directors with respect to all contracts of employment and an unlimited number of other matters.
I am not convinced the plaintiff has shown that the consideration for the grant of the options under the amended plan does not bear such reasonable relation to the value of the options granted as to render their issuance an enjoinable waste of corporate assets as, in my opinion, the proposed issuance under the original plan would have been.
Both plaintiff and the intervening plaintiff have pointed out various respects in which the plan may be deemed "improper" and have made suggestions for remedying the objectionable provisions, as for example, the elimination of the right of a retired employee to exercise the option, for the reason that this right is not in furtherance of the asserted purpose of the grant of the options. While many of the suggestions made may have merit, they relate to matters which are within the discretion of the board of directors to accept or reject and plainly afford no basis for the court to amend the plan adopted by the board of directors so as to embody such suggestions.
Plaintiff finally argues that in any event the court should order the amended plan to be submitted to a new vote of the shareholders. He contends that there is no evidence whatsoever which justified the implication of the statement in the notice of the meeting of shareholders at which the original vote was taken, that the new article to the by-laws was, in the opinion of the board of directors, necessary and desirable in order to retain the services of the officers and employees to whom the options were granted. The shareholders, however, had an opportunity at the original meeting to consider the necessity of adopting the by-law in question, and plaintiff had an opportunity to point out to them at that time the absence of such necessity. In any event, when a board of directors of a corporation takes action under the terms of a by-law adopted by the shareholders, there is no legal basis upon which the court may order such action of the board submitted to the shareholders for approval.
Finally, the intervening plaintiff contends that the plan adopted by the board of directors for the issuance of these options is not an "employees' share purchase plan" within the meaning of § 612 of the Business Corporation Act of 1933. This section
provides: "Unless otherwise provided in its articles, every business corporation may provide and carry out a plan for the issue and sale of its authorized but unissued shares to its employees, or to the employees of any subsidiary corporation, or to a trustee on their behalf, without first offering such shares to its shareholders, upon such terms and conditions, and in such manner as shall be provided in the by-laws * * *."
Several of the contentions relied upon by the intervening plaintiff were disposed of in my previous opinion, 52 F.Supp. 125, but I did not pass at that time on the contention that this section did not authorize the action taken by the board of directors of defendant because at the time the options were exercisable under the plan the holders might no longer be employees. As applied to the amended plan, the argument of the intervening plaintiff is that the fact that the option may be exercised and the shares purchased by the personal representatives of a deceased employee or by an optionee after he has been physically incapacitated or has retired from defendant's employ, puts the defendant's plan beyond the scope of a "plan for the issue and sale of * * * shares to its employees." The purpose of this section of the Act appears to be to permit corporate employers to devise and carry out a plan by which their employees may be granted a share or interest in the corporation to enhance their incentive and loyalty. This purpose may be effected by granting to persons who are presently employees options to purchase shares at some future date, especially where the grant is, as under the present plan, conditioned upon an agreement by the optionee to continue in the corporation's employ for at least one year. That the optionee need not be an employee at the time of the exercise of the option may tend to reduce the extent to which the plan will effect the purpose of this section of the Act, but does not place the plan beyond its scope.
I make the following conclusions of law:
1. In an action by a shareholder of a corporation to restrain it from doing acts approved by its board of directors the burden is upon the plaintiff to establish that such acts are beyond the scope of matters subject to the determination of the board of directors.
2. Plaintiff has failed to establish that under the amended bonus plan adopted by the board of directors of defendant corporation there is no reasonable relationship between the value of the options granted and the consideration received by the defendant therefor.
3. The grant of options under the amended plan does not constitute a gift of corporate assets by the majority of stockholders.
4.The amended plan is within the scope of an "employees' share purchase plan" authorized by Section 612 of the Pennsylvania Act of May 5, 1933, P.L. 364.
5. The injunction entered in this matter on October 8, 1943 does not prohibit the issuance of options for the purchase of shares of defendant's stock under the terms and conditions of the amended bonus plan adopted by defendant and set forth in its motion to dissolve the injunction.