that the exercise of this power would be so unfair as to be invalid. After hearing testimony and reviewing Pennsylvania law, I conclude this assertion is incorrect.
The plan treats all shareholders alike and is not inequitable to any shareholder or shareholder group. First, all shareholders have the opportunity to vote for or against the plan at the meeting of July 23. Second, all shareholders can elect either the one vote or ten vote series: the ten vote series is not restricted to insiders. The court is cognizant of the fact that the election between the two types of stocks involves difficult choices in which issues such as marginability, differential voting rights and differential dividends must be balanced against each other. However, the fact that the plan necessitates a difficult choice does not render it inequitable.
There is no basis in Pennsylvania law, historic or otherwise, for a policy of one vote per share in common stock. Pa. Stat. Ann. tit. 15 § 1601 (Purdon 1967 Supp.). Under Pennsylvania law, restrictions on the transferability of shares are valid unless "manifestly unreasonable," Business Corporate Law § 613.1C(4), showing a legislative determination that such restrictions should be permitted unless they pass beyond "the outer limit of permissiveness." No evidence has been presented which would indicate that the value of shareholders' stock will be harmed by implementation of the plan. Furthermore, each shareholder is presented with several options should he or she find elements of the plan unattractive. For example, if the restrictions on transferability of the ten vote stock are unappealing to a shareholder, he or she can vote against the plan, elect to take Series A shares, or elect to take Series B shares and convert later to Series A. If a shareholder disagrees with the expert analysis that the reclassification will not have an adverse impact on stock values, he may elect the shares he speculates will be more valuable.
If the plan had been structured so as to preclude the non-controlling shareholders from electing a particular series of stock, the court may have found the plan to be a violation of the directors' trust obligation. See, e.g.: Kahn v. Schiff, 105 F. Supp. 973 (S.D. Ohio 1952). However, that is not this case; since each shareholder has the same choice, it cannot be said that the plan discriminates against any group.
Should the plan be approved by the shareholders, it will be possible for the controlling shareholders to control a majority of the voting power while holding as little as 9.1% of the outstanding voting stock of the company. However, this possibility is explicitly set forth in the proxy materials themselves, and does not compel a finding that the plan is inequitable or unfair.
Lastly, the plaintiffs' allegation that the reclassification plan is really a Rule 13e-3 "going private" transaction is incorrect. The plan is specifically tailored to avoid the elements of a Rule 13e-3 transaction.
In conclusion, the plaintiff's request for preliminary injunctive relief must be denied. The plaintiffs' assertions have evidenced no showing of irreparable harm, nor a probability of success on the merits of the case. Nothing has indicated that the Company or its shareholders will be injured if the plan is voted on by the shareholders. Nothing has indicated that plaintiff Ronald Baron's interests as a shareholder will be injured if the vote is taken. Nothing has indicated that the Company's defensive, anti-takeover actions are the result of an "interested board" which has neglected its fiduciary duties or acted without legitimate corporate purposes. It is the primary obligation of directors to afford the corporation good management. Good management results largely from the managers' qualifications -- their experience, skill, judgment and character -- and not from extensive family relationships. Kahn, 105 F. Supp. at 976. But, as this matter has revealed, the two are not mutually exclusive.
An order follows.
AND NOW, this 21st day of July, 1986, for the reasons set forth in the foregoing Memorandum, it is ORDERED that the motion brought pursuant to Fed. R. Civ. P. 23.1 by defendant Strawbridge & Clothier, and joined by the twelve individual defendants, to dismiss the derivative claims of plaintiffs Ronald Baron and Baron Capital, Inc. is GRANTED. All derivative claims contained in plaintiffs' complaint are hereby DISMISSED.
It is further ORDERED that the motion for preliminary injunctive relief brought by plaintiffs Ronald Baron, Baron Capital, Inc. and Berry Acquisition Co. is DENIED.