143 A.2d 25 (Pa. 1958)
Glen Alden Corporation is a Pennsylvania corporation engaged principally in the mining of anthracite coal and lately in the manufacture of air conditioning units and firefighting equipment.1 In recent years the company's operating revenue has declined substantially, and its coal operations have resulted in tax loss carryovers of approximately $14,000,000.2 In October 1957 List Industries Corporation, a Delaware holding company owning interests in motion picture theaters, textile companies and real estate, purchased through a wholly owned subsidiary 38.5% of Glen Alden's outstanding stock.3 This acquisition enabled List to place three of its directors on the Glen Alden board.4
On March 20, 1958, the two corporations entered into a reorganization agreement subject to stockholder approval.5 Glen Alden is to acquire all of the assets of List excepting a small amount of cash reserved for the payment of List's expenses.6 In consideration Glen Alden is to issue 3,621,703 shares of stock to List, which List in turn is to distribute to its shareholders at a ratio of five shares of Glen Alden stock for each six shares of List stock.7 Glen Alden is to increase the authorized number of its shares from 2,500,000 to 7,500,000 without according pre-emptive rights to the present shareholders upon the issuance of any such shares.8 Glen Alden is to assume all of List's liabilities including a $5,000,000 note incurred by List in order to purchase Glen Alden stock in 1957.9 Glen Alden is to change its corporate name from Glen Alden Corporation to List Alden Corporation.10 The present directors of both corporations are to become directors of List Alden.11 List is to be dissolved and List Alden is to then carry on the operations of both former corporations.12
Two days after the agreement was executed notice of the annual meeting of Glen Alden to be held on April 11, 1958, was mailed to the shareholders together with a proxy statement analyzing the reorganization agreement and recommending its approval.13 At this meeting the holders of a majority of the outstanding shares not including those owned by List voted in favor of a resolution approving the reorganization agreement.14 On the day of the shareholders' meeting plaintiff, a shareholder of Glen Alden, filed a complaint in equity against the corporation and its officers seeking to enjoin them from executing and carrying out the agreement.15
The defendants answered admitting the material allegations of fact in the complaint but moved for judgment on the pleadings.16 The trial court concluded that the reorganization agreement was a plan for a de facto merger and that the failure of the notice to conform to the pertinent requirements of the merger provisions rendered the notice defective.17 The trial court entered a final decree denying defendants' motion, entering judgment upon plaintiff's complaint and granting the injunctive relief sought.18 This appeal followed.19
Whether the rights and remedies of a dissenting shareholder accrue to the plaintiff as a result of the Reorganization Agreement executed by Glen Alden Corporation and List Industries Corporation?20
Section 908A of the Pennsylvania Business Corporation Law provides that if any shareholder of a domestic corporation which becomes a party to a plan of merger or consolidation shall object to such plan of merger or consolidation, such shareholder shall be entitled to the fair value of his shares upon surrender of the share certificate or certificates representing his shares.21 The rationale of the Lauman case, and of the present section of the Business Corporation Law based thereon, is that when a corporation combines with another so as to lose its essential nature and alter the original fundamental relationships of the shareholders among themselves and to the corporation.22 A shareholder who does not wish to continue his membership therein may treat his membership in the original corporation as terminated and have the value of his shares paid to him.23
Yes. The reorganization agreement fundamentally changes the corporate character of Glen Alden and the interest of the plaintiff as a shareholder therein.24 Glen Alden would be transformed after amendment of its articles into a diversified holding company whose interests would range from motion picture theaters to textile companies rather than continuing primarily as a coal mining company.25 The resulting List Alden would have assets of $169,000,000 and a long-term debt of $38,000,000 in lieu of a company one-half that size and with but one-seventh the long-term debt.26
Control of Glen Alden would pass to the directors of List who would hold eleven of the seventeen directorships on the new board.27 The plaintiff's proportionate interest in Glen Alden would be reduced to only two-fifths of what it presently is because of the issuance of an additional 3,621,703 shares to List not subject to pre-emptive rights, and the book value of his stock would drop from $38 a share to $21 a share.28 Therefore the combination is a merger within the meaning of section 908A of the corporation law.29
The rights and remedies of a dissenting shareholder accrue to the plaintiff because the reorganization agreement constitutes a de facto merger under section 908A of the Business Corporation Law.30
Whether the notice of the annual shareholders' meeting conformed to the requirements of the Business Corporation Law by informing shareholders of the true intent and purpose of the transaction and of their right to dissent?31
Section 902B of the Business Corporation Law requires that notice of the proposed merger and of the right to dissent thereto must be given the shareholders.32 The notice must include a copy or summary of the plan of merger and copies of subsection A of section 908 and subsection B, C and D of section 515 of the act.33
No. The notice of the annual meeting of Glen Alden did not give notice to the shareholders that the true intent and purpose of the meeting was to effect a merger or consolidation of Glen Alden and List.34 It failed to give notice to the shareholders of their right to dissent to the plan of merger or consolidation and claim fair value for their shares.35 It did not contain copies of the text of sections 908 and 515 of the Business Corporation Law as required.36 The proxy statement included the declaration that in the opinion of counsel the shareholders of neither Glen Alden nor List Industries would have any rights of appraisal or similar rights of dissenters with respect to any matter to be acted upon at their respective meetings.37
Therefore the notice was defective and all proceedings in furtherance of the agreement were void.38
The notice of the annual shareholders' meeting did not conform to the requirements of the Business Corporation Law.39