The opinion of the court was delivered by: DIAMOND
The plaintiffs in this action, Miller Tabak Hirsch & Co. ("MTH") and Cede & Co. ("Cede"), are New York partnerships. MTH is an investment banking firm, a registered broker-dealer and a member of the New York and American Stock Exchanges. Cede holds for MTH a number of shares of the defendant, The Penn Traffic Company, ("PTC" or "Company").
PTC is a Pennsylvania corporation engaged primarily in the operation of supermarkets and a dairy business in Pennsylvania and elsewhere. PTC common stock is traded on the American Stock Exchange.
This suit arises out of a proxy contest between MTH, an approximate 7% shareholder of PTC, and the Company itself. In this action the plaintiffs seek a declaratory judgment under 28 U.S.C. § 2201: (1) that the June 27, 1986, shareholders' meeting of PTC was invalidly and illegally called and held; (2) that the PTC by-law authorizing the Board to fix the record date for the annual shareholders' meeting, both before and after the purported amendment of that by-law on June 12, 1986, is defective under the Pennsylvania Business Corporation Law ("BCL"); and, (3) that the aforesaid purported amendment of PTC's by-law by the Executive Committee of PTC's Board of Directors ("Board") was invalid and that it and all actions and votes taken at the June 27 shareholders' meeting are null and void. Based on the foregoing, plaintiffs also seek to enjoin PTC from implementing or taking any action based upon the June 27 meeting.
The facts underlying this case are essentially undisputed.
At a meeting of the Board on January 28, 1986, it scheduled the 1986 annual meeting of the shareholders of PTC for June 17, 1986, and fixed April 21, 1986, as the record date for the determination of those shareholders entitled to notice of, and to vote at, that meeting. The April 21 record date was established in accordance with Article II, Section 13 of the Company's by-laws, which provided in part that the Board "may fix a time, not more than 60 days, prior to the date of any meeting of shareholders . . . as a record date for the determination of the shareholders entitled to notice of, and to vote at, any such meeting . . . ."
At a subsequent meeting of the Board, it decided to submit several proposals for shareholders' approval at the annual meeting. These included two amendments to the Company's Articles of Incorporation. One of these was to increase the number of authorized shares of its common stock from 4,000,000 to 12,000,000 shares and to authorize 2,000,000 shares of preferred stock upon such terms and conditions as the Board may determine. The other was a so-called "business combination" amendment. It is not necessary to set forth the text of those amendments, suffice to state that plaintiffs viewed them as anti-takeover amendments, and at times herein they will be referred to as such.
On May 1, 1986, PTC disseminated to shareholders of record as of April 21, 1986, proxy materials ("Proxy Statement") and a notice of the annual meeting of shareholders. The proxy statement contained information concerning the several proposals which would be submitted for approval to the shareholders and solicited proxies in favor of those proposals.
MTH initially purchased PTC stock in March, 1986, and has been a beneficial shareholder of PTC stock continuously since then. As of April 21, 1986, MTH beneficially owned and had the right to vote an aggregate of 11,500 shares of PTC common stock, and as of June 16, 1986, that total was 150,000 shares.
By a letter dated May 23, 1986, MTH advised PTC that MTH had acquired 100,000 shares of PTC stock in open market purchases and desired to acquire the entire equity of the company. In addition, in view of the upcoming annual meeting at which the anti-takeover proposals were to be considered, MTH offered to meet with the president of PTC to discuss a business combination pursuant to which MTH would purchase for cash all of the Company's outstanding shares.
On May 29, MTH further advised PTC by letter that MTH would solicit proxies for the June 17 meeting in opposition to the proposals of management.
The Board declared a two-for-one stock split on June 4, 1986. This was in the form of a 100% stock dividend and was subject to shareholder approval of the proposal to amend the Articles of Incorporation to increase the authorized common stock. About the same time, the Board sent a letter to PTC shareholders of record as of April 21, 1986, announcing the proposed stock split, advising of the activities of MTH, and again soliciting proxies for management's proposals. Thereafter, by a letter to MTH dated June 5, PTC rejected MTH's overtures.
Meanwhile, the Executive Committee of the PTC Board met on June 12. At that meeting, the Committee, consisting of three of the eleven-member Board, rescheduled the annual meeting of the shareholders from June 17 to June 27, 1986. Because the Committee chose to retain the April 21 record date which was sixty-seven days prior to the rescheduled meeting date, it voted to amend Article II, Section 13 of the Company's by-laws to permit the Board to fix a record date of up to seventy-five days (instead of sixty) prior to the date of any meeting of shareholders.
After the Executive Committee meeting, during the course of the day on June 12, all of the other PTC directors were advised by separate telephone calls from John M. Kriak ("Kriak"), Secretary of PTC, of the action taken that day by the Executive Committee, and all of those board members indicated assent to that action.
Also on June 12, supplemental proxy materials were disseminated by the Board to shareholders of record as of April 21, 1986. The supplemental materials gave notice of the postponement of the annual meeting and advised the shareholders in all particulars regarding the MTH overtures and the pending litigation in New York.
Because PTC had complied with MTH's demands to disseminate corrected proxy materials and to reschedule the annual meeting date, MTH withdrew its motion for a preliminary injunction in the New York Action.
Subsequently, at a regular meeting of the Board on June 17, 1986, all eleven members of the Board unanimously ratified the Executive Committee action of June 12.
At the rescheduled annual meeting of PTC shareholders on June 27, 1986, the shareholders elected management candidates to the Board and approved both of the anti-takeover amendments to the Company's Articles.
Plaintiffs seek to invalidate that meeting and the action therein taken.