MICROSIGNAL, CORP, a Pennsylvania Corporation; and GEORGE PARKS v. Microsignal Corp, a Nevada Corporation, f/k/a Pro Glass Tech

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 04-1188
MICROSIGNAL, CORP, a Pennsylvania Corporation; and GEORGE PARKS
Appellants
v.
MICROSIGNAL CORP, a Nevada Corporation, f/k/a Pro Glass Tech; MATTHEW
MCCONAGHY; CHRIS PULEO; SHERRI YAVELAK; NATAHN BLUMBERG, M.D.
On Appeal from the United States District Court
for the Western District of Pennsylvania
(D.C. No. 03-cv-01589)
District Judge: Honorable Arthur J. Schwab
Submitted Pursuant to Third Circuit LAR 34.1(a)
February 11, 2005
Before: BARRY, FUENTES, and VAN ANTW ERPEN, Circuit Judges
(Filed: February 22, 2005)
OPINION OF THE COURT

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1 The District Court noted that “[a]lthough the transaction eventually changed to a
stock for stock transaction, the nature and amount of consideration . . . to be received by
the MSC-PA shareholders remained unchanged.” District Court Memorandum and Order
at 6 (“District Court Memorandum”).
2
VAN ANTW ERPEN, Circuit Judge.
This is an appeal of a grant of declaratory and injunctive relief by the United States
District Court for the Western District of Pennsylvania. For the following reasons, we
affirm.
I. Facts
The District Court made factual findings during a two-day bench trial. We shall
recount only those facts pertinent to our holding. Appellant MicroSignal PA (“MS-PA”),
a Pennsylvania corporation, claims as its principal asset a technology designed by its
founder, Jeffrey D. Taft, Ph.D. This technology, “SLICES™,” improves the quality and
efficiency of magnetic resonance imaging systems through use of a novel algorithm.
Appellant George Parks was a 10% shareholder in MS-PA, and served as its sole director.
Sometime in June, 2002, MS-PA commenced negotiations concerning a potential reverse
merger transaction with Pro Glass Technologies, Inc. (“Pro Glass”), a Nevada
corporation. On June 27, 2002, Appellant Parks (as President of MS-PA) signed a Letter
of Intent (later amended on July 3, 2002) concerning a “business combination” between
MS-PA and Pro Glass, described as an asset-for-stock transaction.1 On July 8, 2002, Pro
Glass issued a press release, initialed by Appellant Parks, stating that Pro Glass and MS-
PA had entered a “definitive agreement” by which Pro Glass would acquire all of the

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2 Apparently, a second meeting was held on August 19, 2002 to discuss the same
transaction after notice was properly sent at least ten days in advance of the meeting.
3
assets and operations of MS-PA, stating that this acquisition was subject to “approval by
both companies [sic] Board of Directors and shareholders.” District Court Memorandum
at 7. On or about July 24, 2002, Pro Glass sent MS-PA a draft Merger Agreement which
the District Court found was substantially similar in all material respects to the Letter of
Intent, as amended.
On August 1, 2002, a special meeting of the shareholders of MS-PA was noticed
for August 9, 2002. That notice stated that a special meeting was being held to “consider
and approve the business combination between [M S-PA] and Pro Glass Technologies,
Inc. [] in exchange for shares of [Pro Glass].” District Court Memorandum at 9. The
Shareholder Proxy set forth in great detail the terms of the proposed transaction. At the
meeting, a majority of the shareholders voted in favor of the transaction.2
On August 11, 2002, counsel for Pro Glass sent a letter to counsel for MS-PA that
disclosed that the transaction would now be a stock-for-stock transaction. On or about
August 22, 2002, Appellant Parks signed the Agreement of Purchase and Sale, which
provided for the sale of assets in connection with the reverse merger of M S-PA into Pro
Glass.
The Merger Agreement was executed on September 6, 2002, and the Articles of
Mergers and Addendum to the M erger Agreement were executed on September 11, 2002.
The District Court found that the Merger Agreement was substantially similar in all

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3 The final Merger Agreement provides for the same consideration to the shareholders
of MS-PA as set forth in the earlier drafts of the merger documents, and contains
substantially the same representations, warranties and conditions to closing as
contemplated by the earlier documents. District Court Memorandum at 12.
4 Approximately 48 million of those shares are freely traded on the Over the Counter
Bulletin Board. District Court Memorandum at 15.
4
material respects to the deal outlined in the Letter of Intent (as amended), the
Shareholders’ Proxy, and the prior drafts of the Merger Agreement exchanged between
the parties.3
On or about September 23, 2002, the Articles of Merger were filed with the
Nevada Secretary of State’s office. A day later, Appellant Parks was introduced to
approximately fifty potential investors as a director of the new company, MicroSignal NV
(“MS-NV”). A registration statement, signed by Appellant Parks, was filed with the
Securities and Exchange Commission on October 2, 2002. MS-NV thereafter was traded
publicly.
Some time in either late October or November, 2002, Appellant Parks began an
effort to set aside the transaction, claiming that the reverse merger never took place or
that the transaction occurred because of fraud. Despite the fact that more than 95 million
shares of MS-NV stock had been distributed to the public,4 Appellant Parks continued to
operate MS-PA and claim ownership of the SLICES™ technology and the MicroSignal
name. On his own initiative, Appellant Parks sent letters to those conducting business
with MS-NV claiming the merger never took place.

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5 The original complaint, filed in the Pennsylvania Court of Common Pleas, Allegheny
County, alleged eight causes of action, one of which claimed a violation of 15 U.S.C. §
1125(a), a section of the Lanham Act. The remaining seven causes of action arise from
the same factual nucleus so as to “form part of the same case or controversy under Article
III of the United States Constitution.” 28 U.S.C. § 1367(a); see also United Mine Workers
of America v. Gibbs, 383 U.S. 715, 725 (1966).
5
Appellants filed an action in state court on October 16, 2003, alleging eight causes
of action, including a claim under the Lanham Act. It was removed to the United States
District Court for the Western District of Pennsylvania on October 21, 2003. Both parties
agreed to bypass the preliminary injunction hearing and proceed directly to a permanent
injunction/declaratory judgment trial. On December 17 and 18, 2003, the trial court heard
argument on Appellants’ request that the District Court declare the merger void ab initio,
and on Appellees’ request to both declare the merger valid and order the appropriate
individuals to file the Articles of Merger with the Secretary of State for the
Commonwealth of Pennsylvania. The District Court entered a Memorandum and Order
granting injunctive and declaratory relief in favor of Appellees on December 22, 2003.
This appeal of that Order followed.
II. Jurisdiction and Standard of Review
The District Court had jurisdiction over this case under 28 U.S.C. §§ 1331, 1367,5
and 1441. We have jurisdiction pursuant to 28 U.S.C. § 1291, as this is an appeal of a
final order of the District Court.
Our review of a district court’s findings of fact is circumscribed: we will reverse a
finding only if it is clearly erroneous. Medtronic Ave, Inc. v. Advanced Cardiovascular

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6
Sys. Inc., 247 F.3d 44, 53-4 (3d Cir. 2001). A district court’s decision to grant declaratory
relief will not be reversed in the absence of an abuse of discretion, and in making this
determination we will exercise plenary review over a district court’s conclusions of law.
Interdynamics, Inc. v. Wolf, 698 F.2d 157, 167 (3d Cir. 1982) (citing Exxon Corp. v.
Federal Trade Commission, 588 F.2d 895, 900 (3d Cir.1978)); Silverman v. Eastrich
Multiple Investor Fund, L.P., 51 F.3d 28, 30 (3d Cir. 1995).
III. Discussion
“Except in matters governed by the Federal Constitution or by Acts of Congress,
the law to be applied in any case is the law of the State.” Erie R. Co. v. Tompkins, 304
U.S. 64, 78 (1938). “In so doing, we are not free to impose our own view of what state
law should be; we are to apply state law as interpreted by the state’s highest court . . . . In
the absence of guidance from that court we are to refer to decisions of the state’s
intermediate appellate courts for assistance in determining how the highest court would
rule.” McKenna v. Pacific Rail Service, 32 F.3d 820, 825 (3d Cir.1994) (citations
omitted). We therefore look to the Pennsylvania Business Corporation Law and the
courts of the Commonwealth for guidance on this matter.
Appellants contend that the merger was never properly effectuated, and challenge
it on three fronts: (a) the shareholder notice was defective; (b) the shareholders did not
approve of the transaction; and (c) the Articles of Merger were not filed with the
Pennsylvania Secretary of State. The facts underlying these challenges are undisputed.

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6 Appellants make no assertions that the second notice sent on August 9, 2002 was
defective, and we therefore do not discuss what impact this second notice may have on
Appellants’ argument.
7
Therefore, we must determine whether or not any of these points are sufficient bases on
which to void the merger.
A. Shareholder Notice.
Appellants first contend that the merger is void ab initio because the shareholder
notice of August 1, 2002 was defective.6 They claim that this notice violated the
Pennsylvania Business Corporation Law, specifically section 1704(b)(1) (notice must be
sent at least 10 days before meeting), section 1571(d) (notice must contain a copy of
dissenters’ rights), and section 1923 (notice must include a copy or summary of the
proposed transaction). We need not concern ourselves with whether or not the notice was
defective because Appellants cannot challenge the merger on the grounds that the
shareholder notice was defective. In Pennsylvania, the ability of a party to challenge a
merger can be summarized as follows:
It is the aggrieved shareholder, and not the corporate violator of the law,
who has the option of asking a court to rescind a transaction or declare a
merger void. To permit a culpable defendant to prevent the victim from
recovering based on the violator’s own errors would be inequitable.
13 Summ. Pa. Jur. 2d Business Relationships § 10:23 (citations omitted) (emphasis
added); see also First Union Nat’l Bank v. Quality Carriers Inc., 48 Pa. D.&.C.4th 1, 11,
2000 WL 33199269 (C.P. 2000) (stating that, because the Business Corporation Law
exists primarily for the protection of corporate shareholders, corporate personnel

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7 It is unclear from the record whether or not Appellant Parks actually knew of the
rights provided to dissenters under section 1571(d), which is one of the claimed defects in
8
responsible for any deficiencies under that chapter cannot claim them as a defense). We
find the discussion and holding of First Union to be persuasive. The District Court found
that Appellant Parks was responsible for many, if not all, of the defects in the August 1
shareholder notice that MS-PA now points to for relief. We agree. The notice was
signed by Appellant Parks in his capacity as CEO and Secretary of MS-PA. It is well-
settled that a corporation is a creature of legal fiction which can act only through its
officers, directors and other agents, Lokay v. Lehigh Valley Cooperative Farmers Inc.,
492 A.2d 405, 408 (Pa. 1985), and acts of a corporate agent which are performed within
the scope of his authority are binding upon the corporate principal. Daniel Adams Assocs.
Inc. v. Rimbach Publ’g Inc., 519 A.2d 997, 1000 (Pa. 1987). MS-PA cannot now use the
defects of its own making (by and through Appellant Parks) to void the merger between
itself and Pro Glass. We conclude that a Pennsylvania court would not permit M S-PA to
void the merger, and consequently we refuse to do so.
Appellant Parks, while in the position to complain about defects in the notice
process as a shareholder that he created as a corporate officer, fares no better when we
consider the policy of shareholder protection underlying the Business Corporation Law.
Having attended the shareholders meeting, he has waived any objection to insufficient
notice. 15 Pa. Cons. Stat. Ann. § 1705(b) (West 2005). Furthermore, he was fully aware
of the matter to be discussed.7 He cannot now use these notice defects to attack the

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the notice. It is clear, however, that as the sole member of MS-PA’s board, he
recommended that the transaction be approved. He certainly was not a dissenter. Equity
again counsels against allowing him to use a technical defect in the notice process to
support his claim.
9
merger. Because no other shareholder has lodged a complaint regarding the defective
notice, the merger will not be voided for the technical deficiencies cited by Appellants.
B. Shareholder approval of the merger
Appellants next contend that the shareholders of MS-PA never approved the
merger with Pro Glass. Specifically, they argue that what was submitted for shareholder
approval was an asset-for-stock transaction. We must therefore determine what the MS-
PA shareholders approved at the two shareholders meetings.
Nearly fifty years ago, the Supreme Court of Pennsylvania held that “it is no longer
helpful to consider an individual transaction in the abstract and solely by reference to the
various elements therein determine whether it is a ‘merger’ or a ‘sale.’ Instead, to
determine properly the nature of a corporate transaction, we must refer not only to all the
provisions of the agreement, but also to the consequences of the transaction and to the
purposes of the provisions of the corporation law said to be applicable.” Farris v. Glen
Alden Corp., 143 A.2d 25, 28 (Pa. 1958). “Merger” is not defined in the Business
Corporation Law, but has been defined by the courts as the uniting of two or more
corporations by the transfer of property to one of them, which continues in existence, the
others being merged into it. E.g., Seven Springs Farm, Inc. v. Croker, 748 A.2d 740, 746-

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8 One of the key requirements for a merger under traditional corporation law doctrine
is continuity of shareholders, which is found where the purchaser corporation exchanges
its own stock as consideration for the seller corporation’s assets so that the shareholders
of the seller corporation become a constituent part of the purchaser corporation. See, e.g.,
10
47 (Pa. Super. Ct. 2000). Merger is a corporate act that, by operation of law, results in
extinction of the constituent corporation’s stock, id., and is distinct from an asset sale. 13
Summ. Pa. Jur. 2d Business Relationships § 10:22.
The shareholders notice described the proposed transaction as one where MS-PA
would “sell all [its] assets and operations . . . pursuant to a merger with [Pro Glass] or a
subsidiary formed for such purpose, and, subject to the terms of the proposed Agreement,
[Pro Glass] has agreed to purchase [MS-PA].” (Appellants’ App. at 272.) MS-PA’s
assets and operations would be paid for “by the issuance of a maximum 17,051,344
common shares of [Pro Glass] . . . . Assuming issuance of the maximum number of
shares, [MS-PA] will own approximately 80% of the issued and outstanding common
shares of the surviving entity.” Id. The result of the transaction would be a public
company better equipped to raise capital. Id. at 273.
We agree with the District Court’s conclusion that the transaction approved by
MS-PA’s shareholders was a merger, in substance if not in name. While the initial plan
does not call for the dissolution of MS-PA (as is usually the case in a merger), it does call
for the transfer of all assets and operations to a new public entity. This new entity would
be predominantly owned by the shareholders of MS-PA, which itself would be acquired
by Pro Glass as a wholly-owned subsidiary.8 The resultant creation would have the

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Dayton v. Peck, Stow and Wilcox Co. (Pexto), 739 F.2d 690, 693 (1st Cir. 1984)
(applying Massachusetts law). Such continuity is present here.
9 The abolished “de facto merger” doctrine must be distinguished from the judge-made
device for avoiding patent injustice that might befall a party simply because a merger has
been called something else.
10 Section 1105’s Committee Comment explains that section 1904 was “intended to
make Pennsylvania an attractive situs for business organization by assuring the
incorporators that the Pennsylvania courts will not be authorized to recharacterize a
transaction on a form-over-substance basis. The goal of the Business Corporation law was
to reject as emphatically as possible that practice of the 1940’s and 1950’s, which gave
Pennsylvania law a reputation of unpredictability and which was incompatible with
modern business and financial practices.”
11
practical effect of a merger, and hence we view it as such. Our conclusion is further
buoyed by the fact that, despite the characterization of the instant transaction as a
“merger” in several letters to shareholders following ratification of the plan, no
shareholder (save of course for Appellant Parks) has dissented or otherwise claimed that
this was not the type of transaction that was approved at the shareholders meeting.
Our holding is also consonant with the Business Corporation Law’s view on
equitable relief with regard to fundamental business transactions. While it is clear that
the Commonwealth has by statute expressly abolished the doctrine of de facto merger9 as
it existed in Marks v. Autocar Co., 153 F.Supp. 768 (E.D.Pa. 1954), the Business
Corporation Law mandates that “[a] transaction that in form satisfies the requirements of
this subpart may be challenged by reason of its substance only to the extent permitted by
section 1105 . . . .” 15 Pa. Cons. Stat. Ann. § 1904 (West 2005).10 Section 1105 in turn
states that “[a] shareholder of a business corporation shall not have any right to obtain, in

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12
the absence of fraud or fundamental unfairness, an injunction against any proposed plan
or amendment of articles authorized under any provision of this subpart .” Appellants
have alleged nothing on their part that can be cast as either fraud or fundamental
unfairness to them within the meaning of the statute, and in fact urge upon us the same
type of form-over-substance argument we are forbidden from entertaining. The plan
ratified by MS-PA’s shareholders sufficiently described the subsequent merger, and the
District Court properly denied Appellants’ request for injunctive relief.
c. Failure to file the Articles of Merger
Finally, we conclude that the failure to file the Articles of Merger with the
Pennsylvania Secretary of State, a purely ministerial act, is an insufficient ground on
which to void this merger:
[a] merger that fails to comply with the Business Corporation Law is
deemed voidable, not void. This approach allows a court to evaluate the
significance of the defects in the merger process and to weigh the
seriousness of any harm done to the aggrieved parties before declaring the
merger invalid. It also allows for a determination of whether the errors
were made in good faith and what additional damage the injured party may
suffer if the merger is voided. Furthermore, the practical interests of third
parties are protected by this position.
13 Summ. Pa. Jur. 2d Business Relationships § 10:23 (citations omitted). In First Union,
the Court of Common Pleas for Philadelphia County held that if concerns of equity or
impracticality counseled against voiding a voidable merger, a court could refrain from
extolling form over substance and validate an otherwise improper merger. See First

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11 The District Court found that Appellant Parks signed the SEC registration statement
that was filed on October 2, 2002. We consider this act of signing the statement to have
waived any argument Appellants may have had concerning their power to terminate the
merger under the agreement.
12 Indeed, with respect to the shareholders, a particularly strong argument can be made
that the failure to file the Articles of Merger should be overlooked because of the
fundamental unfairness to the shareholders that would result if the merger were now
voided.
13
Union Nat’l Bank, 48 Pa. D. & C.4th at 20-27. Although this decision was rendered by a
lower state court, we find its discussion and holding persuasive in the matter before us.
The District Court made the following findings of fact: (1) the newly formed MS-
NV filed a registration statement and Form 8-K with the Securities and Exchange
Commission;11 (2) NASD changed Pro Glass’s name to MicroSignal NV and issued a
new trading symbol; (3) in September, 2002, Appellant Parks met with approximately 50
potential investors and was introduced as a director of MS-NV; (4) at that meeting, three
persons, including Appellant Parks, were elected to MS-NV’s Board of Directors, and
later held themselves out to the public as being directors; (5) in October, 2002, MS-NV
stock began public trading; (6) by December, 2003, more than 95 million shares of MS-
NV had been distributed to the public, and approximately 48 million of those shares were
freely traded on the Over the Counter Bulletin Board; and (7) MS-NV has spent
significant resources in its efforts to sustain funding for the public company and to bring
the SLICES™ technology to market. Had these been the only findings made, we would
still be convinced that it is both impracticable and inequitable to dismantle this merger.12

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14
We are particularly persuaded that this is the proper course by the District Court’s
findings that Appellant Parks participated in dealings with the SEC and potential
investors as a director of MS-NV.
While it is correct that the Articles of Merger were never filed with the
Pennsylvania Secretary of State, it would be far too impracticable to dismantle this
merger and return the parties to their positions status quo ante. Moreover, it would be
inequitable to punish those who have traded or held MS-NV stock without knowledge of
this oversight, especially since no person aside from Appellant Parks has lodged any sort
of complaint concerning this transaction. We therefore conclude that the considerations
of equity discussed in First Union counsel against voiding this merger.
For these reasons, we affirm the decision of the District Court.

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