Table of Contents s452

TABLE OF CONTENTS

ß 14A:1-2.1 Definitions...... 1

ß 14A:2-1 Purposes...... 3

ß 14A:2-6 Incorporators...... 4

ß 14A:2-7 Certificate of incorporation...... 6

ß 14A:2-8 Organization meeting of directors...... 10

ß 14A:2-9 By-laws; making and altering...... 11

ß 14A:2-10 By-laws and other powers in emergency...... 12

ß 14A:3-1 General powers...... 14

ß 14A:3-2 Ultra vires transactions...... 16

ß 14A:3-3 Guaranty not in furtherance of business interest...... 18

ß 14A:3-4 Contributions by corporations...... 19

ß 14A:3-5 Indemnification of directors, officers and employees...... 21

ß 14A:3-6 Provisions relating to actions by shareholders...... 25

ß 14A:5-2 Annual meeting of shareholders...... 27

ß 14A:5-9 Quorum of shareholders...... 28

ß 14A:5-10 Voting of shares...... 29

ß 14A:5-11 Votes required...... 30

ß 14A:5-12 Greater voting requirements...... 31

ß 14A:5-19 Proxy voting...... 32

ß 14A:5-20 Voting trust...... 34

ß 14A:5-21 Agreements as to voting; provision in certificate of incorporation

as to control of directors...... 36

ß 14A:5-24 Elections of directors; cumulative voting...... 38

ß 14A:6-1 Board of Directors...... 39

ß 14A:6-2 Number of directors...... 41

ß 14A:6-4 Classification of directors; restriction of right to choose

directors...... 42 ß 14A:6-5 Vacancies and newly created directorships...... 43

ß 14A:6-6 Removal of directors...... 44

ß 14A:6-7.1 Directors' voting; quorum of board of directors and committees;

action of board and committees; action of directors without a

meeting...... 46

ß 14A:6-8 Director conflicts of interest...... 48

ß 14A:6-12 Liability of directors in certain cases...... 49

ß 14A:6-14 Liability of directors; reliance on records and reports...... 51

ß 14A:7-1 Authorized shares...... 53

ß 14A:7-2 Issuance of shares in classes and series; board action...... 55

ß 14A:7-3 Subscription for shares...... 57

ß 14A:7-4 Consideration for shares...... 59

ß 14A:7-5 Payment for shares; nonassessability...... 60

ß 14A:7-6 Redeemable shares...... 61

ß 14A:7-8.1 Par value of shares and stated capital...... 63

ß 14A:7-14.1 Limitations on distributions to shareholders...... 64

ß 14A:7-15 Authority to pay dividends...... 65

ß 14A:7-15.1 Share dividends, share divisions and combinations...... 67

ß 14A:7-16 Acquisitions of a corporation's own shares...... 69

ß 14A:11-1 Right of shareholders to dissent...... 70

ß 14A:11-5 Rights of dissenting shareholder...... 73

ß 14A:12-4 Dissolution pursuant to action of board and shareholders...... 74

ß 14A:12-7 Involuntary dissolution; other remedies...... 76

ß 14A:12-8 Effective time of dissolution...... 84 3 of 274 DOCUMENTS

LexisNexis (TM) New Jersey Annotated Statutes

*** THIS SECTION IS CURRENT THROUGH NEW JERSEY 212TH LEGISLATURE *** *** 1ST ANNUAL SESSION, (P.L. 2006 CH. 3) AND NOVEMBER 2005 ELECTION *** *** ANNOTATIONS CURRENT THROUGH APRIL 6, 2006 ***

TITLE 14A. CORPORATIONS, GENERAL CHAPTER 1. GENERAL PROVISIONS AND DEFINITIONS

GO TO THE NEW JERSEY ANNOTATED STATUTES ARCHIVE DIRECTORY

N.J. Stat. ß 14A:1-2.1 (2006)

ß 14A:1-2.1. Definitions

As used in this act, unless the context otherwise requires, the term: (a) "Act" or "this act" means the "New Jersey Business Corporation Act" and includes all amendments and supple- ments thereto. (b) "Attorney General" means the Attorney General of New Jersey. (c) "Authorized shares" means the shares of all classes and series which the corporation is authorized to issue. (d) "Board" means board of directors. "Entire board" means the total number of directors which the corporation would have if there were no vacancies. (e) "Bonds" includes secured and unsecured bonds, debentures, notes and other written obligations for the payment of money. (f) "Certificate of incorporation" includes: (i) the original certificate of incorporation or any other instrument filed or issued under any statute to form a domestic or foreign corporation, as amended, supplemented or restated by certificates of amendment, merger or consolidation or by other certificates or instruments filed or issued under any statute; and (ii) a special act or charter creating a domestic or foreign corporation, as amended, supplemented or restated. (g) "Corporation" or "domestic corporation" means a corporation for profit organized under this act, or existing on its effective date and theretofore organized under any other law of this State for a purpose or purposes for which a corporation may be organized under this act. (h) "Director" means any member of the governing board of a corporation, whether designated as director, trustee, manager, governor, or by any other title. (i) "Foreign corporation" means a corporation for profit organized under laws of a jurisdiction other than this State for a purpose or purposes for which a corporation may be organized under this act. (j) "Resolution" means any action taken or authority granted by the shareholders, the board, or a committee of the board, regardless of whether evidenced by a formal resolution. (k) "Secretary of State" means the Secretary of State of New Jersey. (l) "Shareholder" means one who is a holder of record of shares in a corporation. (m) "Shares" means the units into which the proprietary interests in a corporation are divided. (n) "Subscriber" means one who subscribes for shares in a corporation, whether before or after incorporation.

1 (o) "Subsidiary" means a domestic or foreign corporation whose outstanding shares are owned directly or indirectly by another domestic or foreign corporation in such number as to entitle the holder at the time to elect a majority of its directors without regard to voting power which may thereafter exist upon a default, failure or other contingency. (p) "Treasury shares" means shares of a corporation which have been issued, and have been subsequently acquired by the corporation under circumstances which do not result in cancellation. Treasury shares are issued shares, but not outstanding shares. (q) "Other business entity" means a partnership or limited liability company, whether organized under the laws of this State or under the laws of any other state or foreign jurisdiction. (r) "Votes cast" means all votes cast in favor of and against a particular proposition, but shall not include absten- tions.

HISTORY: L. 1988, c. 94, ß 1; Amended 1995, c. 279, ß 1.

LexisNexis (R) Notes:

LAW REVIEWS

1. 25 Rutgers L. J. 151, NOTE: New Jersey and the Limited Liability Company--Perfect Together?, Autumn, 1993.

2 13 of 274 DOCUMENTS

TITLE 14A. CORPORATIONS, GENERAL CHAPTER 2. PURPOSE AND FORMATION

N.J. Stat. ß 14A:2-1 (2006)

ß 14A:2-1. Purposes

A corporation may be organized under this act for any lawful business purpose or purposes except to do in this State any business for which organization is permitted under any other statute of this State unless such statute permits organization under this act.

HISTORY: L. 1968, c. 350.

CASE NOTES

1. Whether or not licensed medical professionals or entities could practice as a limited liability company, be they domestic or foreign, was a matter that could only be determined through discovery; in order to lawfully incorporate as a general business corporation, the entity could not be permitted to incorporate under an alternative statute unless the alternative statute permitted the entity to also incorporate as a general business corporation. Selective Ins. Co. of Am. v. Med. Alliances, LLC, 362 N.J. Super. 392, 827 A.2d 1188, 2003 N.J. Super. LEXIS 267 (Law Div. 2003).

2. Where the oil corporation guaranteed rental payments to the landlord on a lease entered into between the landlord and a service station operator, which lease had been negotiated by the corporation, it was liable to the landlord as a guaran- tor on such lease when the tenant defaulted on the rent; former N.J. Rev. Stat. ß 14:3-4 (now N.J. Stat. Ann. ß 14A:2-1) was not pertinent as there was no evidence to suggest that the corporation carried on the business of insurance or as a guaranty company, and adequate consideration supported the agreement to guarantee the rent. Hall v. Pauser, 128 N.J.L. 211, 24 A.2d 575, 1942 N.J. Super. LEXIS 398 (N.J. Super. Ct. 1942).

3. In an action seeking an injunctive relief, the lower court properly dismissed the bill and its claims of insolvency because a de facto corporation did not exist where the failure to file a certificate of incorporation with the secretary of state, as required by former N.J. Rev. Stat. ß ß 14:2-1 and 14:2-4 (now N.J. Stat. Ann. ß ß 14A:2-1 and 14A:2-7), and because there was an attempt to avoid fees and franchise taxes, under former N.J. Rev. Stat. ß 14:16-1 (now N.J. Stat. Ann. ß 14A:15-2), and the opening of a bank account was the only exercise of corporate powers. Culkin v. Hillside Restaurant, Inc., 126 N.J. Eq. 97, 8 A.2d 173, 1939 N.J. Super. LEXIS 871 (N.J. Super. Ct. 1939).

3 4 23 of 274 DOCUMENTS

N.J. Stat. ß 14A:2-6 (2006)

ß 14A:2-6. Incorporators

(1) One or more individuals or domestic or foreign corporations may act as incorporator or incorporators of a corporation by signing and filing in the office of the Secretary of State a certificate of incorporation for such corporation. Indi- viduals acting as incorporators shall be at least 18 years of age. Incorporators need not be United States citizens or residents of this State or subscribers to shares in the corporation. (2) Except as otherwise provided in the certificate of incorporation, any action required or permitted by this act to be taken by incorporators may be taken without a meeting. (3) When there are two or more incorporators, if any dies or is for any reason unable to act, the other or others may act. If there is no incorporator able to act, any person for whom an incorporator was acting as agent may act in his stead, or if such other person also dies or is for any reason unable to act, his legal representative may act.

HISTORY: L. 1968, c. 350; Amended by L. 1973, c. 366, ß 5.

CASE NOTES

1. The temptation to disregard the corporate form and to "pierce the corporate veil" has become much greater since the General Corporation Act, N.J. Stat. Ann. ß 14A:2-6 was amended to permit the sole ownership of all the capital stock of the corporation by one person; the statute now permits one person to function as a corporation sole places upon the court the duty to realize that this procedure is lawful and that the corporate form may not be disregarded except in the case of actual fraud. Mingin v. Continental Can Co., 171 N.J. Super. 148, 408 A.2d 146, 1979 N.J. Super. LEXIS 938 (N.J. Super. Ct. 1979).

2. Trade name user was not entitled to seek an injunction to enjoin another corporation from using the same name because mere incorporation in the style and title did not, in and of itself, grant any exclusive right to the trade name user of the trade name and prior preemption of a certain name and prior use were essential to an injunction against the use of an identical or similar name; the trade name user failed to prove the elements requisite for unfair competition or that any

5 secondary meaning had become appended to use of the name. B. Di Medio & Sons v. Camden Lumber & Millwork Co., 23 N.J. Super. 365, 93 A.2d 45, 1952 N.J. Super. LEXIS 662 (N.J. Super. Ct. 1952).

3. The temptation to disregard the corporate form and to "pierce the corporate veil" has become much greater since the General Corporation Act, N.J. Stat. Ann. ß 14A:2-6 was amended to permit the sole ownership of all the capital stock of the corporation by one person; the statute now permits one person to function as a corporation sole places upon the court the duty to realize that this procedure is lawful and that the corporate form may not be disregarded except in the case of actual fraud. Mingin v. Continental Can Co., 171 N.J. Super. 148, 408 A.2d 146, 1979 N.J. Super. LEXIS 938 (N.J. Super. Ct. 1979).

N.J. Stat. ß 14A:2-7 (2006)

ß 14A:2-7. Certificate of incorporation

(1) The certificate of incorporation shall set forth: (a) The name of the corporation; (b) The purpose or purposes for which the corporation is organized. It shall be a sufficient compliance with this paragraph to state, alone or with specifically enumerated purposes, that the corporation may engage in any activity within the purposes for which corporations may be organized under this act, and all such activities shall by such statement be deemed within the purposes of the corporation, subject to express limitations, if any; (c) The aggregate number of shares which the corporation shall have authority to issue; (d) If the shares are, or are to be, divided into classes, or into classes and series, the designation of each class and series, the number of shares in each class and series, and a statement of the relative rights, preferences and limitations of the shares of each class and series, to the extent that such designations, numbers, relative rights, preferences and limitations have been determined; (e) If the shares are, or are to be, divided into classes, or into classes and series, a statement of any authority vested in the board to divide the shares into classes or series or both, and to determine or change for any class or series its designation, number of shares, relative rights, preferences and limitations; (f) Any provision not inconsistent with this act or any other statute of this State, which the incorporators elect to set forth for the management of the business and the conduct of the affairs of the corporation, or creating, defining, limiting or regulating the powers of the corporation, its directors and shareholders or any class of shareholders, including any provision which under this act is required or permitted to be set forth in the bylaws; (g) The address of the corporation's initial registered office, and the name of the corporation's initial registered agent at such address. On or after the effective date of this 1989 amendatory and supplementary act, the address of the registered office as shown on the certificate of incorporation shall be a complete address, including the number and street location of the registered office and, if applicable, the post office box number; (h) The number of directors constituting the first board and the names and addresses of the persons who are to serve as such directors; (i) The names and addresses of the incorporators; (j) The duration of the corporation if other than perpetual; and (k) If, pursuant to subsection 14A:2-7(2), the certificate of incorporation is to be effective on a date subsequent to the date of filing, the effective date of the certificate.

7 (2) The certificate of incorporation shall be filed in the office of the Secretary of State. The corporate existence shall begin upon the effective date of the certificate, which shall be the date of the filing or such later time, not to exceed 90 days from the date of filing, as may be set forth in the certificate. Such filing shall be conclusive evidence that all conditions precedent required to be performed by the incorporators have been complied with and, after the corporate existence has begun, that the corporation has been incorporated under this act, except as against this State in a proceeding to cancel or revoke the certificate of incorporation or for involuntary dissolution of the corporation. (3) The certificate of incorporation may provide that a director or officer shall not be personally liable, or shall be liable only to the extent therein provided, to the corporation or its shareholders for damages for breach of any duty owed to the corporation or its shareholders, except that such provision shall not relieve a director or officer from liability for any breach of duty based upon an act or omission (a) in breach of such person's duty of loyalty to the corporation or its shareholders, (b) not in good faith or involving a knowing violation of law or (c) resulting in receipt by such person of an improper personal benefit. As used in this subsection, an act or omission in breach of a person's duty of loyalty means an act or omission which that person knows or believes to be contrary to the best interests of the corporation or its shareholders in connection with a matter in which he has a material conflict of interest.

HISTORY: L. 1968, c. 350; Amended 1987, c. 35, ß 1; 1988, c. 94, ß 10; 1989, c. 17, ß 1; 1989, c. 175, ß 1.

CASE NOTES

1. On motion of the Official Committee of Administrative Claimants ("ACC") for an order authorizing it to commence and prosecute certain causes of action against certain directors and officers of the debtor in bankruptcy, a Delaware corporation, on behalf of the bankruptcy estate, exculpation language in 8 Del. C. ß 102(b)(7) did not apply to officers of Delaware corporations and, to the extent that the ACC complained of the conduct of debtor's officers, the exculpation clause allegedly contained in the corporate charter did not bar potential liability; likewise, New Jersey's equivalent statute did not allow exculpation of officers for duty of due care violations, N.J. Stat. Ann. ß 14A: 2-7(3), though it was subject to the same exceptions found in Delaware's statute. In re LTV Steel Co., 333 B.R. 397, 2005 Bankr. LEXIS 1983 (Bankr. N.D. Ohio 2005).

2. On motion of the Official Committee of Administrative Claimants ("ACC") for an order authorizing it to commence and prosecute certain causes of action against certain directors and officers of the debtor in bankruptcy, a Delaware corporation, on behalf of the bankruptcy estate, exculpation language in 8 Del. C. ß 102(b)(7) did not apply to officers of Delaware corporations and, to the extent that the ACC complained of the conduct of debtor's officers, the exculpation clause allegedly contained in the corporate charter did not bar potential liability; likewise, New Jersey's equivalent statute did not allow exculpation of officers for duty of due care violations, N.J. Stat. Ann. ß 14A: 2-7(3), though it was subject to the same exceptions found in Delaware's statute. In re LTV Steel Co., 333 B.R. 397, 2005 Bankr. LEXIS 1983 (Bankr. N.D. Ohio 2005).

3. On motion of the Official Committee of Administrative Claimants ("ACC") for an order authorizing it to commence and prosecute certain causes of action against certain directors and officers of the debtor in bankruptcy, a Delaware corporation, on behalf of the bankruptcy estate, exculpation language in 8 Del. C. ß 102(b)(7) did not apply to officers of Delaware corporations and, to the extent that the ACC complained of the conduct of debtor's officers, the exculpation clause allegedly contained in the corporate charter did not bar potential liability; likewise, New Jersey's equivalent

8 statute did not allow exculpation of officers for duty of due care violations, N.J. Stat. Ann. ß 14A: 2-7(3), though it was subject to the same exceptions found in Delaware's statute. In re LTV Steel Co., 333 B.R. 397, 2005 Bankr. LEXIS 1983 (Bankr. N.D. Ohio 2005).

4. Where the boards of a public utility company and its holding company hired a law firm to investigate the basis for shareholders' allegations of mismanagement by board members, and where the law firm relied on the straightforward language of N.J. Stat. Ann. ß 14A:2-7(3) in advising the boards that a clause in the relevant certificate of incorporation applied to limit the directors' and officers' personal liability to the corporation or its shareholders, the boards acted reasonably in relying on the law firm's advice in evaluating the shareholders' demands to sue members of the boards. Fink v. Codey (In re PSE&G S'holder Litig.), 173 N.J. 258, 801 A.2d 295, 2002 N.J. LEXIS 1082 (2002).

5. Trial court properly granted summary judgment dismissing shareholders' derivative suits where companies' board members showed that their decision to end shareholders' litigation was in good faith and reasonable under modified business judgment rule. Under N.J. Stat. Ann. ß 14A:2-7(3), the board acted in good faith and with due care in investi- gating the shareholders' allegations where it hired a law firm which conducted an extensive investigation; the board's decision was reasonable, as it was based on the law firm's well-reasoned determination that litigation was not warranted, would not have been in the companies' best interests, and was unlikely to succeed. Fink v. Codey (In re PSE&G S'holder Litig.), 173 N.J. 258, 801 A.2d 295, 2002 N.J. LEXIS 1082 (2002).

6. In an action seeking an injunctive relief, the lower court properly dismissed the bill and its claims of insolvency because a de facto corporation did not exist where the failure to file a certificate of incorporation with the secretary of state, as required by former N.J. Rev. Stat. ß ß 14:2-1 and 14:2-4 (now N.J. Stat. Ann. ß 14A:2-1 and 14A:2-7), and because there was an attempt to avoid fees and franchise taxes, under former N.J. Rev. Stat. ß 14:16-1 (now N.J. Stat. Ann. ß 14A:15-2), and the opening of a bank account was the only exercise of corporate powers. Culkin v. Hillside Restaurant, Inc., 126 N.J. Eq. 97, 8 A.2d 173, 1939 N.J. Super. LEXIS 871 (N.J. Super. Ct. 1939).

8. Although the General Corporation Act, former N.J. Stat. Ann. ß 14A:1-1 et seq. (now N.J. Stat. Ann. ß 14A:2-1 et seq.), confers upon a corporation a broad power of amendment of its charter, alteration of a charter for the avowed purpose of defeating a relevant aspect of the sovereign's declared public policy cannot achieve judicial approval. State by Furman v. Jefferson Lake Sulphur Co., 36 N.J. 577, 178 A.2d 329, 1962 N.J. LEXIS 274 (1962).

9 LAW REVIEWS

1. 23 Seton Hall L. Rev. 897, TURNING BACK THE TIDE OF DIRECTOR AND OFFICER LIABILITY, 1993.

2. 18 Seton Hall Legis. J. 111, THE NEW JERSEY LIMITED LIABILITY COMPANY STATUTE: BACKGROUND AND CONCEPTS, 1993.

N.J. Stat. ß 14A:2-8 (2006)

ß 14A:2-8. Organization meeting of directors

On or after the effective date of the certificate of incorporation, an organization meeting of the board named in the certificate of incorporation shall be held, at the call of a majority of the board so named, to adopt by-laws, elect officers, authorize the issuance of shares, and transact such other business as may come before the meeting. The board members calling the meeting shall give at least 5 days' notice thereof by mail to each director named in the certificate of incorporation, which notice shall state the time and place of the meeting.

N.J. Stat. ß 14A:2-9 (2006)

ß 14A:2-9. By-laws; making and altering

(1) The initial by-laws of a corporation shall be adopted by the board at its organization meeting. Thereafter, the board shall have the power to make, alter and repeal by-laws unless such power is reserved to the shareholders in the certificate of incorporation, but by-laws made by the board may be altered or repealed, and new by-laws made, by the shareholders. The shareholders may prescribe in the by-laws that any by-law made by them shall not be altered or repealed by the board. (2) The initial by-laws of a corporation adopted by the board at its organization meeting shall be deemed to have been adopted by the shareholders for purposes of this act. (3) Any provision which this act requires or permits to be set forth in the by-laws may be set forth in the certificate of incorporation with equal force and effect.

HISTORY: L. 1968, c. 350.

N.J. Stat. ß 14A:2-10 (2006)

ß 14A:2-10. By-laws and other powers in emergency

(1) The board of a corporation may adopt emergency by-laws, subject to repeal or change by action of the shareholders, which shall, notwithstanding any different provision elsewhere in this act or in the certificate of incorporation or by- laws, be operative during any emergency in the conduct of the business of the corporation resulting from an attack on the United States or any nuclear or atomic disaster. The emergency by-laws may make any provision that may be practi- cal and necessary for the circumstances of the emergency, including provisions that (a) a meeting of the board may be called by any officer or director in such manner and under such conditions as shall be prescribed in the emergency by-laws; (b) the director or directors in attendance at the meeting, or any greater number fixed by the emergency by-laws, shall constitute a quorum; and (c) the officers or other persons designated in a list approved by the board before the emergency, all in such order of priority and subject to such conditions and for such period of time, not longer than reasonably necessary after the termination of the emergency, as may be provided in the emergency by-laws or in the resolution approving the list, shall, to the extent required to provide a quorum at any meeting of the board, be deemed directors for such meeting. (2) Before or during any such emergency, the board may provide, and from time to time modify, lines of succession in the event that during such an emergency any or all officers or agents of the corporation shall for any reason be ren- dered incapable of discharging their duties. (3) Before or during any such emergency, the board may change the head office or designate several alternative head offices or regional offices, or authorize the officers so to do, said change to be effective during the emergency. (4) To the extent not inconsistent with any emergency by-laws so adopted, the by-laws of the corporation shall remain in effect during any such emergency and upon its termination the emergency by-laws shall cease to be operative. (5) Unless otherwise provided in emergency by-laws, notice of any meeting of the board during any such emergency need be given only to such of the directors as it may be feasible to reach at the time and by such means as may be feasible at the time, including publication, or other means of mass communication. (6) To the extent required to constitute a quorum at any meeting of the board during any such emergency, the officers of the corporation who are present shall, unless otherwise provided in emergency by-laws, be deemed, in order of rank and within the same rank in order of seniority, directors for such meeting. (7) No officer, director or employee acting in accordance with any emergency by-laws shall be liable except for willful misconduct. No officer, director or employee shall be liable for any action taken by him in good faith in such an emergency in furtherance of the ordinary business affairs of the corporation even though not authorized by the by-laws then in effect.

13 HISTORY: L. 1968, c. 350.

TITLE 14A. CORPORATIONS, GENERAL CHAPTER 3. POWERS

N.J. Stat. ß 14A:3-1 (2006)

ß 14A:3-1. General powers

(1) Each corporation, subject to any limitations provided in this act or any other statute of this State, or in its certificate of incorporation, shall have power (a) to have perpetual duration unless a limited period is stated in its certificate of incorporation; (b) to sue and be sued, complain and defend and participate as a party or otherwise in any judicial, administrative, arbitrative or other proceeding, in its corporate name; (c) to have a corporate seal which may be altered at pleasure, and to use the same by causing it, or a facsimile thereof, to be impressed or affixed or in any other manner reproduced; (d) to purchase, lease or otherwise acquire, own, hold, improve, use and otherwise deal in and with, real or personal property, or any interest therein, wherever situated; (e) to sell, convey, mortgage, create a security interest in, lease, exchange, transfer and otherwise dispose of all or any part of its property and assets; (f) to purchase, subscribe for, or otherwise acquire, own, hold, vote, use, employ, sell, exchange, mortgage, lend, create a security interest in, or otherwise dispose of, and otherwise use and deal in and with, shares or other interests in, or obligations of, other domestic or foreign corporations, associations, partnerships or individuals, or direct or indirect obligations of any domestic or foreign government or instrumentality thereof; (g) to make contracts and guarantees and incur liabilities, borrow money, issue its bonds, and secure any of its obligations by mortgage of or creation of a security interest in all or any of its property, franchises and income; (h) to lend money, invest and reinvest its funds, and take and hold real and personal property as security for the payment of funds so loaned or invested; (i) to conduct its business, carry on its operations, and have offices and exercise the powers granted by this act any- where in the universe; (j) to elect or appoint officers, employees and agents of the corporation, and define their duties and fix their compensation; (k) to make and alter by-laws for the administration and regulation of the affairs of the corporation; (l) to pay pensions and establish pension, profit-sharing, stock option, stock purchase, incentive and deferred compensation plans, and plans of similar nature for, and to furnish medical services, life, sickness, accident, disability or un- employment insurance and benefits, education, housing, social and recreational services and other similar aids and services to, any or all of its directors, officers, employees, and agents, their families, dependents or beneficiaries;

15 (m) to participate with others in any corporation, partnership, limited partnership, joint venture, or other association of any kind, or in any transaction, undertaking or arrangement which the participating corporation would have power to conduct by itself, whether or not such participation involves sharing or delegation of control with or to others; (n) at the request of the United States government or of any of its agencies, to transact any lawful business in time of war or other national emergency, notwithstanding the purpose or purposes set forth in its certificate of incorporation; (o) to provide for its benefit life insurance and other insurance with respect to the services of any or all of its directors, officers, employees, and agents, or on the life of any shareholder for the purpose of acquiring at his death shares of its stock owned by such shareholder; (p) to have and exercise all other powers necessary or convenient to effect any or all of the purposes for which the corporation is organized. (2) It shall not be necessary to set forth in the certificate of incorporation any corporate powers enumerated in this act.

CASE NOTES

1. Pursuant to N.J. Stat. Ann. ß 14A:3-1, a corporation had the right to conduct its business in any jurisdiction it pleased, subject to the requirement of N.J. Stat. Ann. ß 14A:4-1 to maintain a registered office and agent in New Jersey, and the corporation was permitted to move its assets to another state. Pilat v. Broach Sys., Inc., 108 N.J. Super. 88, 260 A.2d 13, 1969 N.J. Super. LEXIS 336 (N.J. Super. Ct. 1969).

N.J. Stat. ß 14A:3-2 (2006)

ß 14A:3-2. Ultra vires transactions

No act of a corporation and no conveyance or transfer of real or personal property to or by a corporation shall be invalid by reason of the fact that the corporation was without capacity or power to do such act or to make or receive such conveyance or transfer, but such lack of capacity or power may be asserted: (a) In a proceeding by a shareholder against the corporation to enjoin the doing of any act or acts or the transfer of real or personal property by or to the corporation. If the unauthorized acts or transfer sought to be enjoined are being, or are to be, performed or made pursuant to any contract to which the corporation is a party, the court may, if all of the parties to the contract are parties to the proceeding and if it deems the same to be equitable, set aside and enjoin the performance of such contract, and in so doing may allow to the corporation or to the other parties to the contract, as the case may be, compensation for the loss or damage sustained by either of them which may result from the action of the court in setting aside and enjoining the performance of such contract, but anticipated profits to be derived from the performance of the contract shall not be awarded by the court as a loss or damage sustained. (b) In a proceeding by the corporation, whether acting directly or through a receiver, trustee, or other legal representative, or through shareholders in a representative suit, against the incumbent or former officers or directors of the corporation. (c) In a proceeding by the Attorney General, as provided in this act, to dissolve the corporation, or in a proceeding by the Attorney General to enjoin the corporation from the transaction of unauthorized business.

HISTORY: L. 1968, c. 350.

CASE NOTES

1. Where a cooperative corporation entered into a loan and mortgage agreement with a bank by which it mortgaged cooperative apartments and represented to the bank that the requisite number of shareholders approved the terms of the loan and mortgage, the shareholders, who never sued the corporation claiming that the agreement was ultra vires, could

17 not prevent foreclosure of the mortgage on the ground that they had never voted for the loan and mortgage agreement. Anchor Sav. Bank v. Waters Ebb Owens, Inc., 1992 U.S. Dist. LEXIS 11384 (D.N.J. July 27 1992).

2. Where a cooperative corporation entered into a loan and mortgage agreement with a bank by which it mortgaged cooperative apartments and represented to the bank that the requisite number of shareholders approved the terms of the loan and mortgage, the shareholders, who never sued the corporation claiming that the agreement was ultra vires, could not prevent foreclosure of the mortgage on the ground that they had never voted for the loan and mortgage agreement. Anchor Sav. Bank v. Waters Ebb Owens, Inc., 1992 U.S. Dist. LEXIS 11384 (D.N.J. July 27 1992).

3. Where a cooperative corporation entered into a loan and mortgage agreement with a bank by which it mortgaged cooperative apartments and represented to the bank that the requisite number of shareholders approved the terms of the loan and mortgage, the shareholders, who never sued the corporation claiming that the agreement was ultra vires, could not prevent foreclosure of the mortgage on the ground that they had never voted for the loan and mortgage agreement. Anchor Sav. Bank v. Waters Ebb Owens, Inc., 1992 U.S. Dist. LEXIS 11384 (D.N.J. July 27 1992).

LAW REVIEWS

N.J. Stat. ß 14A:3-3 (2006)

ß 14A:3-3. Guaranty not in furtherance of business interest

(1) A corporation may give a guaranty not in furtherance of its direct or indirect business interests only when authorized at a meeting of shareholders by the affirmative vote of all of the votes cast by the holders of each class and series of shares entitled to vote thereon. If authorized by such a vote, the guaranty may be secured by a mortgage of or a security interest in all or any part of the corporate property, or any interest therein, wherever situated. (2) Nothing in subsection 14A:3-3(1) shall be deemed to diminish the rights, if any, of the corporation's creditors.

HISTORY: L. 1968, c. 350; Amended 1973, c. 366, ß 7; 1988, c. 94, ß 11.

N.J. Stat. ß 14A:3-4 (2006)

ß 14A:3-4. Contributions by corporations

(1) Any corporation organized for any purpose under any general or special law of this State, unless otherwise provided in its certificate of incorporation or by-laws, shall have power, irrespective of corporate benefit, to aid, singly or in cooperation with other corporations and with natural persons, in the creation or maintenance of institutions or organiza- tions engaged in community fund, hospital, charitable, philanthropic, educational, scientific or benevolent activities or patriotic or civic activities conducive to the betterment of social and economic conditions, and the board may authorize the making of contributions for those purposes in money, securities, including shares of the corporation, or other property, in such reasonable amounts as the board may determine; provided, that a contribution shall not be authorized hereun- der if at the time of the contribution or immediately thereafter the donee institution shall own more than 10% of the voting stock of the donor corporation or one of its subsidiaries. (2) The provisions of this section shall not be construed as directly or indirectly minimizing or interpreting the rights and powers of corporations, as heretofore existing, with reference to appropriations, expenditures or contributions of the nature above specified.

HISTORY: L. 1968, c. 350; Amended 1988, c. 94, ß 12.

CASE NOTES

1. Under former N.J. Stat. Ann. ß ß 14:3-13.1, 14:13.2, and 14:13.3 (now N.J. Stat. Ann. ß 14A:3-4), a corporation had the power to make a charitable contribution of corporate funds to a private university. A. P. Smith Mfg. Co. v. Barlow, 26 N.J. Super. 106, 97 A.2d 186, 1953 N.J. Super. LEXIS 435 (N.J. Super. Ct. 1953), affirmed by 13 N.J. 145, 98 A.2d 581, 1953 N.J. LEXIS 186, 39 A.L.R.2d 1179 (1953).

2. Corporation's donation to the university was not illegal because a corporation was allowed to make charitable dona- tions provided that the contribution was not made to an institution that owned more than ten percent of the voting stock of the corporation and the donation did not exceed one percent of the capital and surplus of the corporation; the stockholders were not entitled to judgment in their favor. A. P. Smith Mfg. Co. v. Barlow, 13 N.J. 145, 98 A.2d 581, 1953

20 N.J. LEXIS 186, 39 A.L.R.2d 1179 (1953), appeal dismissed by 346 U.S. 861, 98 L. Ed. 373, 74 S. Ct. 107, 1953 U.S. LEXIS 1621 (1953).

N.J. Stat. ß 14A:3-5 (2006)

ß 14A:3-5. Indemnification of directors, officers and employees

(1) As used in this section, (a) "Corporate agent" means any person who is or was a director, officer, employee or agent of the indemnifying corporation or of any constituent corporation absorbed by the indemnifying corporation in a consolidation or merger and any person who is or was a director, officer, trustee, employee or agent of any other enterprise, serving as such at the request of the indemnifying corporation, or of any such constituent corporation, or the legal representative of any such director, officer, trustee, employee or agent; (b) "Other enterprise" means any domestic or foreign corporation, other than the indemnifying corporation, and any partnership, joint venture, sole proprietorship, trust or other enterprise, whether or not for profit, served by a corporate agent; (c) "Expenses" means reasonable costs, disbursements and counsel fees; (d) "Liabilities" means amounts paid or incurred in satisfaction of settlements, judgments, fines and penalties; (e) "Proceeding" means any pending, threatened or completed civil, criminal, administrative or arbitrative action, suit or proceeding, and any appeal therein and any inquiry or investigation which could lead to such action, suit or proceeding; and (f) References to "other enterprises" include employee benefit plans; references to "fines" include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the indemnifying corporation" include any service as a corporate agent which imposes duties on, or involves services by, the corporate agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner the person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the corporation" as referred to in this section. (2) Any corporation organized for any purpose under any general or special law of this State shall have the power to indemnify a corporate agent against his expenses and liabilities in connection with any proceeding involving the corporate agent by reason of his being or having been such a corporate agent, other than a proceeding by or in the right of the corporation, if (a) such corporate agent acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation; and (b) with respect to any criminal proceeding, such corporate agent had no reasonable cause to believe his conduct was unlawful. The termination of any proceeding by judgment, order, settlement, conviction or upon a plea of nolo con-

22 tendere or its equivalent, shall not of itself create a presumption that such corporate agent did not meet the applicable standards of conduct set forth in paragraphs 14A:3-5(2)(a) and 14A:3-5(2)(b). (3) Any corporation organized for any purpose under any general or special law of this State shall have the power to indemnify a corporate agent against his expenses in connection with any proceeding by or in the right of the corporation to procure a judgment in its favor which involves the corporate agent by reason of his being or having been such corporate agent, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation. However, in such proceeding no indemnification shall be provided in respect of any claim, issue or matter as to which such corporate agent shall have been adjudged to be liable to the corporation, unless and only to the extent that the Superior Court or the court in which such proceeding was brought shall determine upon application that despite the adjudication of liability, but in view of all circumstances of the case, such corporate agent is fairly and reasonably entitled to indemnity for such expenses as the Superior Court or such other court shall deem proper. (4) Any corporation organized for any purpose under any general or special law of this State shall indemnify a corporate agent against expenses to the extent that such corporate agent has been successful on the merits or otherwise in any proceeding referred to in subsections 14A:3-5(2) and 14A:3-5(3) or in defense of any claim, issue or matter therein. (5) Any indemnification under subsection 14A:3-5(2) and, unless ordered by a court, under subsection 14A:3-5(3) may be made by the corporation only as authorized in a specific case upon a determination that indemnification is proper in the circumstances because the corporate agent met the applicable standard of conduct set forth in subsection 14A:3-5(2) or subsection 14A:3-5(3). Unless otherwise provided in the certificate of incorporation or bylaws, such determination shall be made (a) by the board of directors or a committee thereof, acting by a majority vote of a quorum consisting of directors who were not parties to or otherwise involved in the proceeding; or (b) if such a quorum is not obtainable, or, even if obtainable and such quorum of the board of directors or committee by a majority vote of the disinterested directors so directs, by independent legal counsel, in a written opinion, such counsel to be designated by the board of directors; or (c) by the shareholders if the certificate of incorporation or bylaws or a resolution of the board of directors or of the shareholders so directs. (6) Expenses incurred by a corporate agent in connection with a proceeding may be paid by the corporation in ad- vance of the final disposition of the proceeding as authorized by the board of directors upon receipt of an undertaking by or on behalf of the corporate agent to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified as provided in this section. (7) (a) If a corporation upon application of a corporate agent has failed or refused to provide indemnification as required under subsection 14A:3-5(4) or permitted under subsections 14A:3-5(2), 14A:3-5(3) and 14A:3-5(6), a corporate agent may apply to a court for an award of indemnification by the corporation, and such court (i) may award indemnification to the extent authorized under subsections 14A:3-5(2) and 14A:3-5(3) and shall award indemnification to the extent required under subsection 14A:3-5(4), notwithstanding any contrary determination which may have been made under subsection 14A:3-5(5); and (ii) may allow reasonable expenses to the extent authorized by, and subject to the provisions of, subsection 14A:3- 5(6), if the court shall find that the corporate agent has by his pleadings or during the course of the proceeding raised genuine issues of fact or law. (b) Application for such indemnification may be made (i) in the civil action in which the expenses were or are to be incurred or other amounts were or are to be paid; or (ii) to the Superior Court in a separate proceeding. If the application is for indemnification arising out of a civil action, it shall set forth reasonable cause for the failure to make application for such relief in the action or proceeding in which the expenses were or are to be incurred or other amounts were or are to be paid. The application shall set forth the disposition of any previous application for indemnification and shall be made in such manner and form as may be required by the applicable rules of court or, in the absence thereof, by direction of the court to which it is made. Such application shall be upon notice to the corporation. The court may also direct that notice

23 shall be given at the expense of the corporation to the shareholders and such other persons as it may designate in such manner as it may require. (8) The indemnification and advancement of expenses provided by or granted pursuant to the other subsections of this section shall not exclude any other rights, including the right to be indemnified against liabilities and expenses incurred in proceedings by or in the right of the corporation, to which a corporate agent may be entitled under a certificate of incorporation, bylaw, agreement, vote of shareholders, or otherwise; provided that no indemnification shall be made to or on behalf of a corporate agent if a judgment or other final adjudication adverse to the corporate agent establishes that his acts or omissions (a) were in breach of his duty of loyalty to the corporation or its shareholders, as defined in subsection (3) of N.J.S.14A:2-7, (b) were not in good faith or involved a knowing violation of law or (c) resulted in receipt by the corporate agent of an improper personal benefit. (9) Any corporation organized for any purpose under any general or special law of this State shall have the power to purchase and maintain insurance on behalf of any corporate agent against any expenses incurred in any proceeding and any liabilities asserted against him by reason of his being or having been a corporate agent, whether or not the corporation would have the power to indemnify him against such expenses and liabilities under the provisions of this section. The corporation may purchase such insurance from, or such insurance may be reinsured in whole or in part by, an insurer owned by or otherwise affiliated with the corporation, whether or not such insurer does business with other in- sureds. (10) The powers granted by this section may be exercised by the corporation, notwithstanding the absence of any provision in its certificate of incorporation or bylaws authorizing the exercise of such powers. (11) Except as required by subsection 14A:3-5(4), no indemnification shall be made or expenses advanced by a corporation under this section, and none shall be ordered by a court, if such action would be inconsistent with a provision of the certificate of incorporation, a bylaw, a resolution of the board of directors or of the shareholders, an agreement or other proper corporate action, in effect at the time of the accrual of the alleged cause of action asserted in the proceeding, which prohibits, limits or otherwise conditions the exercise of indemnification powers by the corporation or the rights of indemnification to which a corporate agent may be entitled. (12) This section does not limit a corporation's power to pay or reimburse expenses incurred by a corporate agent in connection with the corporate agent's appearance as a witness in a proceeding at a time when the corporate agent has not been made a party to the proceeding.

CASE NOTES

1. Independent outside counsel was not entitled to indemnification under N.J. Stat. Ann. ß ß 14A:3-5(2), which provided for permissive corporate indemnification of certain persons in certain circumstances, and since he could not show that he was entitled to indemnification under any other statutory provision, the trial court's indemnification order entered in his favor on his request for indemnification for representing himself against the ultimately dismissed claim of the shareholders of the corporation that he committed legal malpractice in representing the corporation in the hiring of a property manager had to be reversed. Cohen v. Southbridge Park, 369 N.J. Super. 156, 848 A.2d 781, 2004 N.J. Super. LEXIS 164 (App.Div. 2004).

2. Trial court erred in relying on N.J. Stat. Ann. ß 14A:3-5(4) to order that independent outside attorney be indemnified by corporation after the independent outside attorney was dismissed from a derivative lawsuit brought by the shareholders of the corporation alleging that he committed legal malpractice in representing the corporation regarding the hiring of a property manager, which was the subject of a separate suit; the independent outside attorney was not a "corporate agent" under N.J. Stat. Ann. ß 14A:3-5(4), which listed the corporate members entitled to indemnification and, thus,

24 was not entitled to indemnification. Cohen v. Southbridge Park, 369 N.J. Super. 156, 848 A.2d 781, 2004 N.J. Super. LEXIS 164 (App.Div. 2004).

3. Independent outside attorney was not a "corporate agent" as that term was defined in N.J. Stat. Ann. ß 14A:3-5(1)(a), which identified "corporate agents" as any person who is or was a director, officer, employee, or agent of the indemnifying corporation since he did not fall within any of those categories in his position as outside counsel for the corporation; accordingly, he was not entitled to indemnification from the corporation for defending himself against a legal malpractice claim brought in a shareholder derivative lawsuit that alleged he should not have represented the corporation in the main case involving the hiring of a property manager. Cohen v. Southbridge Park, 369 N.J. Super. 156, 848 A.2d 781, 2004 N.J. Super. LEXIS 164 (App.Div. 2004).

LAW REVIEWS

3. 29 Seton Hall Legis. J. 11, Article: A GUIDE TO NEW JERSEY CORPORATE POLITICAL ACTION COMMIT- TEES AFTER THE 2004 CAMPAIGN FINANCE LEGISLATION AND EXECUTIVE ORDER, 2004.

N.J. Stat. ß 14A:3-6 (2006)

ß 14A:3-6. Provisions relating to actions by shareholders

(1) No action shall be brought in this State by a shareholder in the right of a domestic or foreign corporation unless the plaintiff was a holder of shares or of voting trust certificates therefor at the time of the transaction of which he com- plains, or his shares or voting trust certificates thereafter devolved upon him by operation of law from a person who was a holder at such time. (2) In any action hereafter instituted in the right of any such corporation by the holder or holders of shares of such corporation or of voting trust certificates therefor, the court having jurisdiction, upon final judgment and a finding that the action was brought without reasonable cause, may require the plaintiff or plaintiffs to pay to the parties named as defendant the reasonable expenses, including fees of attorneys, incurred by them in the defense of such action. (3) In any action now pending or hereafter instituted or maintained in the right of any such corporation by the holder or holders of less than 5% of the outstanding shares of any class or series of such corporation or of voting trust certificates therefor, unless the shares or voting trust certificates so held have a market value in excess of $ 25,000.00, the corporation in whose right such action is brought shall be entitled at any time before final judgment to require the plaintiff or plaintiffs to give security for the reasonable expenses, including fees of attorneys, that may be incurred by it in connection with such action or may be incurred by other parties named as defendant for which it may become legally liable. Market value shall be determined as of the date that the plaintiff institutes the action or, in the case of an interven- er, as of the date that he becomes a party to the action. The amount of such security may from time to time be increased or decreased, in the discretion of the court, upon showing that the security provided has or may become inadequate or excessive. The corporation shall have recourse to such security in such amount as the court having jurisdiction shall determine upon the termination of such action.

CASE NOTES

1. Plaintiff, a former shareholder who transferred all of her shares to her husband in a divorce proceeding, had standing to maintain her shareholder's derivative action because the action arose out of events that occurred during plaintiff's

26 ownership of shares and neither N.J. Stat. Ann. ß 14A:3-6(1) nor N.J. Ct. R. 4:32-5 required continued ownership throughout the litigation. Brown v. Brown, 323 N.J. Super. 30, 731 A.2d 1212, 1999 N.J. Super. LEXIS 249 (N.J. Super. Ct. App. Div. 1999).

2. Preferred shareholder had no standing under N.J. Stat. Ann. ß 14A:3-6(1) of the New Jersey Business Corporation Act, and N.J. Ct. R. 4:32-5, to a settlement agreement resolving a class action and derivative suit where he was not a shareholder at the time the objectionable transaction occurred. Pogostin v. Leighton, 216 N.J. Super. 363, 523 A.2d 1078, 1987 N.J. Super. LEXIS 1020 (N.J. Super. Ct. 1987).

3. Derivative action suit against casualty company and directors by policyholder was dismissed because policyholder did not own policy at time alleged improper transactions occurred, which was required under general corporation law to bring such suit. Amabile v. Lerner, 64 N.J. Super. 507, 166 A.2d 603, 1960 N.J. Super. LEXIS 381 (N.J. Super. Ct. 1960), affirmed by 74 N.J. Super. 443, 181 A.2d 520, 1962 N.J. Super. LEXIS 593 (N.J. Super. Ct. 1962).

4. Where a shareholder initiated a legal action against the corporation and others, he was required, under former N.J. Stat. Ann. ß 14:3-15 (now N.J. Stat. Ann. ß 14A:3-6), to deposit a security for reasonable expenses that included counsel fees because the shareholder held less than five percent of the aggregate par value or stated capital value of all outstanding shares of the corporation's stock. Moldoff v. Mar-dale Manor, Inc., 50 N.J. Super. 607, 143 A.2d 4, 1958 N.J. Super. LEXIS 521 (N.J. Super. Ct. 1958).

5. Preferred shareholder had no standing under N.J. Stat. Ann. ß 14A:3-6(1) of the New Jersey Business Corporation Act, and N.J. Ct. R. 4:32-5, to a settlement agreement resolving a class action and derivative suit where he was not a shareholder at the time the objectionable transaction occurred. Pogostin v. Leighton, 216 N.J. Super. 363, 523 A.2d 1078, 1987 N.J. Super. LEXIS 1020 (N.J. Super. Ct. 1987).

6. Appeal by corporation and its officer was dismissed because they failed to file security for the appeal; however, the court ruled that the payment of the security under former N.J. Stat. Ann. ß 14:3-15 (now N.J. Stat. Ann. ß 14A:3-6), N.J. Ct. R. 4:55-6(a), 4:55-7 was not a fund of the court and was for future costs and future counsel fees, not past ones; thus, the security was not a subject of the litigation. De Bow v. Lakewood Hotel & Land Ass'n, 52 N.J. Super. 288, 145 A.2d 493, 1958 N.J. Super. LEXIS 407 (N.J. Super. Ct. 1958).

7. Appeal by corporation and its officer was dismissed because they failed to file security for the appeal; however, the court ruled that the payment of the security under former N.J. Stat. Ann. ß 14:3-15 (now N.J. Stat. Ann. ß 14A:3-6), N.J. Ct. R. 4:55-6(a), 4:55-7 was not a fund of the court and was for future costs and future counsel fees, not past ones; thus, the security was not a subject of the litigation. De Bow v. Lakewood Hotel & Land Ass'n, 52 N.J. Super. 288, 145 A.2d 493, 1958 N.J. Super. LEXIS 407 (N.J. Super. Ct. 1958).

LAW REVIEWS

TITLE 14A. CORPORATIONS, GENERAL CHAPTER 5. SHAREHOLDERS' MEETINGS, ELECTIONS, RIGHTS AND LIABILITIES

N.J. Stat. ß 14A:5-2 (2006)

ß 14A:5-2. Annual meeting of shareholders

An annual meeting of the shareholders shall be held at such time as may be provided in the by-laws, or as may be fixed by the board pursuant to authority granted in the by-laws, and, in the absence of such a provision, at noon on the first Tuesday of April. Failure to hold the annual meeting at the designated time, or to elect a sufficient number of directors at such meeting or any adjournment thereof, shall not affect otherwise valid corporate acts or work a forfeiture or dissolution of the corporation. If the annual meeting for election of directors is not held on the date designated therefor, the directors shall cause the meeting to be held as soon thereafter as convenient. If there is a failure to hold an annual meeting for a period of 30 days after the date designated therefor, or if no date has been designated for a period of 13 months after the organization of the corporation or after its last annual meeting, the Superior Court may, upon the application of any shareholder, summarily order the meeting or the election, or both, to be held at such time and place, upon such notice and for the transaction of such business as may be designated in such order. At any meeting ordered to be called pursuant to this section, the shareholders present in person or by proxy and having voting powers shall constitute a quorum for the transaction of the business designated in such order.

LAW REVIEWS

1. 29 Rutgers Computer & Tech. L.J. 423, NOTE & COMMENT: Online Shareholder Meetings: Corporate Law Anom- alies or the Future of Governance?, 2003.

N.J. Stat. ß 14A:5-9 (2006)

ß 14A:5-9. Quorum of shareholders

(1) Unless otherwise provided in the certificate of incorporation or this act, the holders of shares entitled to cast a majority of the votes at a meeting shall constitute a quorum at such meeting. The shareholders present in person or by proxy at a duly organized meeting may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. Less than a quorum may adjourn. (2) Whenever the holders of any class or series of shares are entitled to vote separately on a specified item of business, the provisions of this section shall apply in determining the presence of a quorum of such class or series for the transaction of such specified item of business.

HISTORY: L. 1968, c. 350.

N.J. Stat. ß 14A:5-10 (2006)

ß 14A:5-10. Voting of shares

Each outstanding share shall be entitled to one vote on each matter submitted to a vote at a meeting of shareholders, unless otherwise provided in the certificate of incorporation.

HISTORY: L. 1968, c. 350.

N.J. Stat. ß 14A:5-11 (2006)

ß 14A:5-11. Votes required

(1) Whenever any action, other than the election of directors, is to be taken by vote of the shareholders, it shall be authorized by a majority of the votes cast at a meeting of shareholders by the holders of shares entitled to vote thereon, unless a greater plurality is required by the certificate of incorporation or another section of this act. (2) The certificate of incorporation may provide that any class or classes of shares, or any series thereof, shall vote as a class to authorize any action, including amendments to the certificate of incorporation. Such voting as a class shall be in addition to any other vote required by this act. Where voting as a class or series is provided in the certificate of incorporation, it shall be by the proportionate vote provided in the certificate or, if no proportionate vote is so provided, then for any action other than the election of directors, by a majority of the votes cast at such meeting by the holders of shares of such class or series entitled to vote thereon. (3) Where voting as a class or series is required by this act to authorize any action, such action shall be authorized by a majority of the votes cast at such meeting by the holders of shares of each such class or series entitled to vote thereon, unless a greater vote is required by the certificate of incorporation or another section of this act. Such voting as a class shall be in addition to any other vote required by this act.

HISTORY: L. 1968, c. 350.

N.J. Stat. ß 14A:5-12 (2006)

ß 14A:5-12. Greater voting requirements

(1) The provisions of the certificate of incorporation shall control whenever, with respect to any action to be authorized by the shareholders of a corporation, including the election of directors, the certificate of incorporation requires the affirmative vote of a greater proportion of the votes cast, including a unanimous vote, by the holders of shares entitled to vote thereon, or by the holders of shares of any class or series thereof, than is required by this act with respect to such action. (2) An amendment of the certificate of incorporation which changes or deletes such a provision shall be authorized by the same vote as would be required to take action under the provision.

LAW REVIEWS

1. 24 Seton Hall L. Rev. 234, CORPORATIONS EVENLY DIVIDED: JUDICIAL REMEDIES FOR EQUAL SHARE- HOLDERS, 1993.

N.J. Stat. ß 14A:5-19 (2006)

ß 14A:5-19. Proxy voting

Proxy voting. (1) Every shareholder entitled to vote at a meeting of shareholders or to express consent without a meeting may authorize another person or persons to act for him by proxy. Every proxy shall be executed in writing by the shareholder or his agent, except that a proxy may be given by a shareholder or his agent by telegram, cable, telephonic transmission or by any other means of electronic communication so long as that telegram, cable, telephonic transmission or other means of electronic communication either sets forth or is submitted with information from which it can be determined that the proxy was authorized by the shareholder or his agent. No proxy shall be valid for more than 11 months, unless a longer time is expressly provided therein. Unless it is irrevocable as provided in subsection 14A:5-19(3), a proxy shall be revocable at will. The grant of a later proxy revokes any earlier proxy unless the earlier proxy is irrevocable. A proxy shall not be revoked by the death or incapacity of the shareholder, but the proxy shall continue to be in force until revoked by the personal representative or guardian of the shareholder. The presence at any meeting of any shareholder who has given a proxy does not revoke the proxy unless the shareholder files written notice of the revocation with the secretary of the meeting prior to the voting of the proxy or votes the shares subject to the proxy by written ballot. (2) A person named in a proxy as the attorney or agent of a shareholder may, if the proxy so provides, substitute another person to act in his place, including any other person named as an attorney or agent in the same proxy. The substitution shall not be effective until an instrument effecting it is filed with the secretary of the corporation. (3) A proxy which states that it is irrevocable is irrevocable if coupled with an interest either in the stock itself or in the corporation and, in particular and without limitation, if it is held by any of the following or a nominee of any of the following: (a) A pledgee; (b) A person who has purchased or agreed to purchase the shares; (c) A creditor of the corporation who has extended credit or has agreed to continue to extend credit to the corporation if the proxy is given in consideration of the extension or continuation; (d) A person who has agreed to perform services as an employee of the corporation if the proxy is given in consideration of the agreement; or (e) A person designated pursuant to the terms of an agreement as to voting between two or more shareholders. An irrevocable proxy becomes revocable when the interest which supports the proxy has terminated. (4) Unless noted conspicuously on the share certificate, an otherwise irrevocable proxy may be revoked by a person who becomes the holder of the shares without actual knowledge of the restriction.

33 HISTORY: L. 1968, c. 350; Amended 1973, c. 366, ß 15; 1988, c. 94, ß 20; 1998, c. 144.

CASE NOTES

1. Under former N.J. Stat. Ann. ß 15:1-4(e) (now N.J. Stat. Ann. ß 14A:5-19), in the absence of statutory authority coupled with suitable provisions in the by-laws of a corporation, voting on corporate matters must be by the members of the corporation in person and not by proxy. Lo Curto v. River Edge Girl Scout Ass'n, 59 N.J. Super. 408, 157 A.2d 862, 1960 N.J. Super. LEXIS 614 (N.J. Super. Ct. 1960).

N.J. Stat. ß 14A:5-20 (2006)

ß 14A:5-20. Voting trust

(1) One or more shareholders of a corporation may confer upon a trustee or trustees the right to vote or otherwise represent his or their shares, for a period not to exceed 21 years, by entering into a written voting trust agreement specify- ing the terms and conditions of the voting trust, by filing an executed counterpart of the agreement at the registered office of the corporation and by depositing his or their shares of an original issue with, or by transferring his or their shares to, such trustee or trustees for the purposes of the agreement. After the filing of the agreement, certificates for shares shall be issued to the trustee or trustees to represent any shares of an original issue so deposited with him or them, and any certificates for shares so transferred shall be surrendered and cancelled and new certificates therefor issued to such trustee or trustees stating that they are issued under such agreement, and in the entry of such ownership in the records of the corporation that fact shall also be noted, and such trustee or trustees may vote the shares so transferred during the term of such agreement. The copy of the voting trust agreement so filed shall be subject to inspection at any reasonable time by any shareholder of the corporation or by any holder of a beneficial interest in the voting trust, in person or by agent or attorney. Voting trust certificates shall be issued to evidence beneficial interests in the voting trust. (2) A trustee who votes shares subject to a voting trust shall incur no responsibility as shareholder, trustee, or otherwise, except for his own dereliction of duty. (3) Where two or more persons are designated as voting trustees, and the right and method of voting any shares standing in their names at any meeting of the corporation are not fixed by the agreement appointing the trustees, the right to vote said shares and the manner of voting the same at any such meeting shall be determined by a majority of the trustees. If the trustees are equally divided as to how the shares shall be voted, the Superior Court may, in an action brought by any of such trustees, appoint an additional person to act with such trustees in such matter, and the right to vote said shares and the manner of voting the same at any such meeting shall be determined by a majority of the trustees and such additional person. The court may proceed in the action in a summary manner or otherwise. (4) At any time within two years prior to the time of expiration of any such voting trust agreement as originally fixed or as extended as herein provided, one or more beneficiaries of the voting trust may, by agreement in writing and with the written consent of such voting trustees, extend the duration of such voting trust agreement with regard to the shares subject to their beneficial interest for an additional period not exceeding 21 years. The voting trustees shall, prior to the time of expiration of any such voting trust agreement, as originally fixed or as previously extended, as the case may be, file in the registered office of the corporation an executed counterpart of such extension agreement and of their consent thereto, and thereupon the duration of such voting trust agreement shall be extended for the period fixed in such extension agreement; but no such extension agreement shall affect the rights or obligations of persons not parties there- to. (5) The validity of a voting trust or of an extension thereof, otherwise lawful, shall not be affected during a period of 21 years from the date of its commencement by the fact that by its terms it will or may last beyond such 21-year period; but it shall become inoperative at the end of such 21-year period.

35 HISTORY: L. 1968, c. 350; Amended 1991, c. 91, ß 228.

N.J. Stat. ß 14A:5-21 (2006)

ß 14A:5-21. Agreements as to voting; provision in certificate of incorporation as to control of directors

(1) An agreement between two or more shareholders, if in writing and signed by the parties thereto, may provide that in exercising any voting rights, the shares held by them shall be voted as therein provided, or as they may agree, or as determined in accordance with a procedure agreed upon by them. Those agreements shall be specifically enforceable. (2) A provision in the certificate of incorporation otherwise prohibited by law because it improperly restricts the board in its management of the business of the corporation, or improperly transfers or provides for the transfer to one or more persons named in the certificate of incorporation or to be selected from time to time by shareholders, all or any part of such management otherwise within the authority of the board, shall nevertheless be valid if all the incorporators have authorized such provision in the certificate of incorporation or the holders of record of all outstanding shares, whether or not having voting power, have authorized such provision in an amendment to the certificate of incorporation. If all management powers otherwise within the authority of the board are so transferred, the certificate of incorporation may provide that the corporation shall not have a board in which case the certificate of incorporation and any other certificate or document requiring a statement of the number, names, and addresses of directors shall set out in lieu thereof the name, address, and title, if any, of the person or persons in whom such management authority is then vested. (3) A provision authorized by subsection 14A:5-21(2) shall become invalid if, to the knowledge of the board, or of the person or persons having the management authority otherwise in the board, (a) Subsequent to the adoption of such provision, shares are transferred or issued to any person who takes delivery of the share certificate without notice thereof, unless such person consents in writing to such provisions; or (b) Any shares of the corporation are listed on a national securities exchange or regularly quoted in an over-the- counter market by one or more members of a national or affiliated securities association. (4) If a provision authorized by subsection 14A:5-21(2) shall have become invalid as provided in subsection 14A:5- 21(3), the board, or the person or persons having the management authority otherwise in the board, shall amend the certificate of incorporation to delete such provision by filing a certificate of amendment in the office of the Secretary of State. The certificate shall be executed on behalf of the corporation and shall set forth (a) The name of the corporation; (b) The date of the adoption of the amendment; (c) The deleted provision; and (d) The event set forth in subsection 14A:5-21(3) by reason of which the provision has become invalid. (5) The effect of any provision authorized by subsection 14A:5-21(2) shall be to relieve the directors, if any, and grant to and impose upon, the person or persons vested with management authority otherwise in the board the rights, powers, privileges, and liabilities, including liability for managerial acts or omissions, that are granted to and imposed

37 upon directors by law to the extent that, and so long as, the discretion and powers which otherwise would be in the directors in their management of corporate affairs are vested in such person or persons by any such provision. Such person or persons shall be deemed to be directors for purposes of applying the provisions of this act and shall be deemed to be corporate agents for the purposes of section 14A:3-5. (6) If the certificate of incorporation contains a provision authorized by subsection 14A:5-21(2), the existence of such provision shall be noted conspicuously on the face of every certificate for shares issued by such corporation, and each holder of such certificate shall conclusively be deemed to have taken delivery with notice of such provision. (7) As used in this section, "person" shall include a natural person, a domestic or foreign corporation, a partnership, limited partnership, trust, firm, society, association, joint stock company, or any other entity legally competent to contract in its own name.

CASE NOTES

1. Because the nonprofit corporate shareholders could resolve to transfer their voting power to nonshareholders under N.J. Stat. Ann. ß 14A:5-21, the town council was permitted to appoint a director pursuant to by-laws approved by the shareholders. Delspina v. Woscha, Inc., 223 N.J. Super. 84, 538 A.2d 367, 1988 N.J. Super. LEXIS 53 (N.J. Super. Ct. 1988).

LAW REVIEWS

N.J. Stat. ß 14A:5-24 (2006)

ß 14A:5-24. Elections of directors; cumulative voting

(1) Elections of directors need not be by ballot unless a shareholder demands election by ballot at the election and before the voting begins. If the by-laws require election by ballot at any shareholders' meeting, such requirement is waived unless compliance therewith is requested by a shareholder entitled to vote at such meeting. (2) At each election of directors every shareholder entitled to vote at such election shall have the right to vote the number of shares owned by him for as many persons as there are directors to be elected and for whose election he has a right to vote, or, if the certificate of incorporation so provides, to cumulate his votes by giving one candidate as many votes as the number of such directors multiplied by the aggregate number of his votes shall equal, or by distributing such votes on the same principle among any number of such candidates. (3) Except as otherwise provided by the certificate of incorporation, directors shall be elected by a plurality of the votes cast at an election.

LAW REVIEWS

TITLE 14A. CORPORATIONS, GENERAL CHAPTER 6. BOARD OF DIRECTORS; OFFICERS

N.J. Stat. ß 14A:6-1 (2006)

ß 14A:6-1. Board of Directors

(1) The business and affairs of a corporation shall be managed by or under the direction of its board, except as in this act or in its certificate of incorporation otherwise provided. Directors shall be at least 18 years of age and need not be United States citizens or residents of this State or shareholders of the corporation unless the certificate of incorporation or by-laws so require. The certificate of incorporation or by-laws may prescribe other qualifications for directors. (2) In discharging his duties to the corporation and in determining what he reasonably believes to be in the best interest of the corporation, a director may, in addition to considering the effects of any action on shareholders, consider any of the following: (a) the effects of the action on the corporation's employees, suppliers, creditors and customers; (b) the effects of the action on the community in which the corporation operates; and (c) the long term as well as the short- -term interests of the corporation and its shareholders, including the possibility that these interests may best be served by the continued independence of the corporation. (3) If on the basis of the factors described in subsection (2) of this section, the board of directors determines that any proposal or offer to acquire the corporation is not in the best interest of the corporation, it may reject such proposal or offer. If the board of directors determines to reject any such proposal or offer, the board of directors shall have no obligation to facilitate, remove any barriers to, or refrain from impeding the proposal or offer.

HISTORY: L. 1968, c. 350; Amended 1973, c. 366, ß 21; 1988, c. 94, ß 24; 1989, c. 106, ß 1.

CASE NOTES

1. Trustee had authority to continue the decedent's laundry business without having first obtained approval of the court pursuant to former N.J. Stat. Ann. ß 3:7-77 (now N.J. Stat. Ann. ß 3B:14-23) because decedent's interest therein had been neither as a sole proprietorship and partnership, but rather was through ownership of stock in the corporation, which itself operated the business pursuant to former N.J. Stat. Ann. ß 14:7-1 (now N.J. Stat. Ann. ß 14A:6-1). Blau- velt v. Citizens Trust Co., 3 N.J. 545, 71 A.2d 184, 1950 N.J. LEXIS 299 (1950).

40 2. Corporate refinancing plan was required to be submitted to the corporate shareholders for approval when, although the corporate directors had authority to formulate a refinancing plan and to restructure debt, the proposed plan restricted the control that shareholders had over corporate activities for a 12-year period. Hodge v. Cuba Co., 142 N.J. Eq. 340, 60 A.2d 88, 1948 N.J. Super. LEXIS 1040 (N.J. Super. Ct. 1948).

3. Contract by the two shareholders, acting by virtue of their ownership of a majority of the outstanding stock, with a minority shareholder, would not bind the corporation; the directors of the corporation could not perform an act solely in order to satisfy a personal obligation of the majority stockholders. D'Arcangelo v. D'Arcangelo, 137 N.J. Eq. 63, 43 A.2d 169, 1945 N.J. Super. LEXIS 655 (N.J. Super. Ct. 1945).

4. Transaction regarding purchase of a controlling interest in one corporation from another corporation was void ab ini- tio where there was no notice of the meeting at which the sale of the stock was authorized nor was there a quorum. Hill Dredging Corp. v. Risley, 18 N.J. 501, 114 A.2d 697, 1955 N.J. LEXIS 274 (1955).

5. Business of a corporation is entrusted to its board of directors, former N.J. Rev. Stat. ß 14:7-1 (now N.J. Stat. Ann. ß 14A:6-1); if the board of directors exercise their judgment honestly and sincerely in the absence of a purpose which is unlawful or against good morals, the courts of the state will not substitute their judgment for that of the board. Mim- naugh v. Atlantic City Elec. Co., 7 N.J. Super. 310, 70 A.2d 904, 1950 N.J. Super. LEXIS 794 (N.J. Super. Ct. 1950).

6. Corporate refinancing plan was required to be submitted to the corporate shareholders for approval when, although the corporate directors had authority to formulate a refinancing plan and to restructure debt, the proposed plan restricted the control that shareholders had over corporate activities for a 12-year period. Hodge v. Cuba Co., 142 N.J. Eq. 340, 60 A.2d 88, 1948 N.J. Super. LEXIS 1040 (N.J. Super. Ct. 1948).

LAW REVIEWS

N.J. Stat. ß 14A:6-2 (2006)

ß 14A:6-2. Number of directors

The board of directors of a corporation shall consist of one or more members. Subject to any provisions contained in the certificate of incorporation, the by-laws shall specify the number of directors, or that the number of directors shall not be less than a stated minimum nor more than a stated maximum, with the actual number to be determined in the manner prescribed in the by-laws, except as to the number constituting the first board.

HISTORY: L. 1968, c. 350; Amended by L. 1969, c. 102, ß 6; L. 1973, c. 366, ß 22.

N.J. Stat. ß 14A:6-4 (2006)

ß 14A:6-4. Classification of directors; restriction of right to choose directors

(1) A corporation may provide in its certificate of incorporation for the classification of its directors in respect to the time for which they shall severally hold office, but no class of directors shall hold office for a term shorter than one year or longer than five years, and the term of office of at least one class shall expire in each year. No classification of directors shall be effective prior to the first annual meeting of shareholders. (2) Any corporation having more than one class or series of shares may provide in its certificate of incorporation for the election of one or more directors by the shareholders of any class or series, to the exclusion of other shareholders. The certificate of incorporation may grant shareholders of a class or series of shares the right to elect one or more directors upon the occurrence of stated events for a specific term or a term ending upon the occurrence of stated events.

N.J. Stat. ß 14A:6-5 (2006)

ß 14A:6-5. Vacancies and newly created directorships

(1) Unless otherwise provided in the certificate of incorporation or the by-laws, any directorship not filled at the annual meeting, any vacancy, however caused, occurring in the board, and newly created directorships resulting from an increase in the authorized number of directors may be filled by the affirmative vote of a majority of the remaining directors even though less than a quorum of the board, or by a sole remaining director. A director so elected by the board shall hold office until the next succeeding annual meeting of shareholders and until his successor shall have been elected and qualified. (2) Unless otherwise provided in the certificate of incorporation or by-laws, when one or more directors shall resign from the board effective at a future date, a majority of the directors, then in office, including those who have so re- signed, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or res- ignations shall become effective, and each director so chosen shall hold office as herein provided in the filling of other vacancies. (3) Any directorship not filled by the board may be filled by the shareholders at an annual meeting or at a special meeting of shareholders called for that purpose. (4) If by reason of death, resignation or other cause a corporation has no directors in office, any shareholder or the executor or administrator of a deceased shareholder may call a special meeting of shareholders for the election of directors and, over his own signature, shall give notice of said meeting in accordance with section 14A:5-4 except to the extent that such notice is waived pursuant to section 14A:5-5.

N.J. Stat. ß 14A:6-6 (2006)

ß 14A:6-6. Removal of directors

(1) One or more or all the directors of a corporation may be removed for cause or, unless otherwise provided in the certificate of incorporation, without cause by the shareholders by the affirmative vote of the majority of the votes cast by the holders of shares entitled to vote for the election of directors. (2) Unless otherwise provided in the certificate of incorporation, the removal of directors, with or without cause, by vote of the shareholders as provided in subsection 14A:6-6(1), is subject to the following qualifications (a) In any case where cumulative voting is authorized, if less than the total number of directors then serving on the board is to be removed by the shareholders, no one of the directors may be so removed if the votes cast against his removal would be sufficient to elect him if then voted cumulatively at an election of the entire board; or, if there are classes of directors, at an election of the class of directors of which he is a part; (b) A director elected by a class vote, as authorized by subsection 14A:6-4(2), may be removed only by a class vote of the holders of shares entitled to vote for his election; (c) If the certificate of incorporation requires a greater vote than a plurality of the votes cast for the election of directors, no director may be removed except by the greater vote required to elect him; and (d) Shareholders of a corporation whose board of directors is classified as provided in subsection 14A:6-4(1) shall not be entitled to remove directors without cause. (3) The certificate of incorporation or a by-law adopted by the shareholders may provide that the board shall have the power to remove directors for cause and to suspend directors pending a final determination that cause exists for removal. (4) The Superior Court, in an action in which the court may proceed in a summary manner or otherwise, may re- view the removal or suspension of a director for cause. (5) No act of the board done during the period when a director has been suspended or removed for cause shall be impugned or invalidated solely on account of the suspension or removal if the suspension or removal is thereafter re- scinded by the shareholders or by the board or by the final judgment of the court.

CASE NOTES

1. By virtue of N.J. Stat. Ann. ß ß 14A:9-1 and 14A:6-6, a corporation was permitted to amend its certificate of incorporation to allow directors to be removed without cause but such an exercise did not affect an incumbent director's existing rights as a director and he could not be removed except for cause. Pilat v. Broach Sys., Inc., 108 N.J. Super. 88, 260 A.2d 13, 1969 N.J. Super. LEXIS 336 (N.J. Super. Ct. 1969).

2. By virtue of N.J. Stat. Ann. ß ß 14A:9-1 and 14A:6-6, a corporation was permitted to amend its certificate of incorporation to allow directors to be removed without cause but such an exercise did not affect an incumbent director's existing rights as a director and he could not be removed except for cause. Pilat v. Broach Sys., Inc., 108 N.J. Super. 88, 260 A.2d 13, 1969 N.J. Super. LEXIS 336 (N.J. Super. Ct. 1969).

N.J. Stat. ß 14A:6-7.1 (2006)

ß 14A:6-7.1. Directors' voting; quorum of board of directors and committees; action of board and committees; action of directors without a meeting

(1) Each director shall have one vote at meetings of the board or at meetings of board committees unless the certificate of incorporation provides the director is entitled to more than one vote pursuant to a provision in the certificate of incorporation consistent with subsection 14A:6-7.1(2). (2) The certificate of incorporation may provide either that one or more directors elected by the holders of shares of a class or series shall have more than one vote or that the shareholders at an annual or special meeting shall have the right to designate one or more directors who shall have more than one vote. The certificate of incorporation shall also specify either the number of votes which those directors shall have or that the shareholders electing those directors shall have the right to specify the number of votes which the directors shall have. Any person appointed by the board to fill a vacancy of a directorship with more than one vote shall have only one vote unless otherwise provided by the certificate of incorporation. If a director has more than one vote as provided in this subsection, any reference in this act to the vote or act of a majority of the board, of the directors, or of the entire board, or similar language, means the vote or act of directors who are entitled to cast a majority of the votes. (3) The participation of directors with a majority of the votes of the entire board, or of any committee thereof, shall constitute a quorum for the transaction of business, unless the certificate of incorporation or the by-laws provide that a greater or lesser proportion shall constitute a quorum, which in no case shall be less than one-third of the votes of the entire board or committee. (4) Any action approved by a majority of the votes of directors present at a meeting at which a quorum is present shall be the act of the board or of the committee, unless this act, or the certificate of incorporation, or the by-laws require a greater proportion, including a unanimous vote. (5) Unless otherwise provided by the certificate of incorporation or by-laws, any action required or permitted to be taken pursuant to authorization voted at a meeting of the board or any committee thereof, may be taken without a meeting if, prior or subsequent to the action, all members of the board or of such committee, as the case may be, consent thereto in writing and the written consents are filed with the minutes of the proceedings of the board or committee. Such consent shall have the same effect as a unanimous vote of the board or committee for all purposes, and may be stated as a unanimous vote in any certificate or other document filed with the Secretary of State.

HISTORY: L. 1988, c. 94, ß 29.

LAW REVIEWS

47 1. 24 Seton Hall L. Rev. 234, CORPORATIONS EVENLY DIVIDED: JUDICIAL REMEDIES FOR EQUAL SHARE- HOLDERS, 1993.

N.J. Stat. ß 14A:6-8 (2006)

ß 14A:6-8. Director conflicts of interest

(1) No contract or other transaction between a corporation and one or more of its directors, or between a corporation and any domestic or foreign corporation, firm or association of any type or kind in which one or more of its directors are directors or are otherwise interested, shall be void or voidable solely by reason of such common directorship or interest, or solely because such director or directors are present at the meeting of the board or a committee thereof which authorizes or approves the contract or transaction, or solely because his or their votes are counted for such purpose, if any one of the following is true: (a) The contract or other transaction is fair and reasonable as to the corporation at the time it is authorized, approved or ratified; or (b) The fact of the common directorship or interest is disclosed or known to the board or committee and the board or committee authorizes, approves, or ratifies the contract or transaction by unanimous written consent, provided at least one director so consenting is disinterested, or by affirmative vote of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (c) The fact of the common directorship or interest is disclosed or known to the shareholders, and they authorize, approve or ratify the contract or transaction. (2) Common or interested directors may be counted in determining the presence of a quorum at a board or committee meeting at which a contract or transaction described in subsection 14A:6-8(1) is authorized, approved or ratified. (3) The board, by the affirmative vote of a majority of directors in office and irrespective of any personal interest of any of them, shall have authority to establish reasonable compensation of directors for services to the corporation as directors, officers, or otherwise.

N.J. Stat. ß 14A:6-12 (2006)

ß 14A:6-12. Liability of directors in certain cases

(1) In addition to any other liabilities imposed by law upon directors of a corporation, directors who vote for, or con- cur in, any of the following corporate actions (a) the declaration of any dividend or other distribution of assets to the shareholders contrary to the provisions of this act or contrary to any restrictions contained in the certificate of incorporation; (b) the purchase of the shares of the corporation contrary to the provisions of this act or contrary to any restrictions contained in the certificate of incorporation; (c) the distribution of assets to shareholders during or after dissolution of the corporation without paying, or ade- quately providing for, all known debts, obligations and liabilities of the corporation, except that the directors shall be liable only to the extent of the value of assets so distributed and to the extent that such debts, obligations and liabilities of the corporation are not thereafter paid, discharged, or barred by statute or otherwise; (d) the complete liquidation of the corporation and distribution of all of its assets to its shareholders without dissolving or providing for the dissolution of the corporation and the payment of all fees, taxes, and other expenses incidental thereto, except that the directors shall be liable only to the extent of the value of assets so distributed and to the extent that such fees, taxes, and other expenses incidental to dissolution are not thereafter paid; (e) the making of any loan to an officer, director or employee of the corporation or of any subsidiary thereof contrary to the provisions of this act; shall be jointly and severally liable to the corporation for the benefit of its creditors or shareholders, to the extent of any injury suffered by such persons, respectively, as a result of any such action. (2) Any director against whom a claim is successfully asserted under this section shall be entitled to contribution from the other directors who voted for, or concurred in, the action upon which the claim is asserted. (3) Directors against whom a claim is successfully asserted under this section shall be entitled, to the extent of the amounts paid by them to the corporation as a result of such claims, (a) upon payment to the corporation of any amount of an improper dividend or distribution, to be subrogated to the rights of the corporation against shareholders who received such dividend or distribution with knowledge of facts indicating that it was not authorized by this act, in proportion to the amounts received by them respectively; (b) upon payment to the corporation of any amount of the purchase price of an improper purchase of shares, to have the corporation rescind such purchase of shares and recover for their benefit, but at their expense, the amount of such purchase price from any seller who sold such shares with knowledge of facts indicating that such purchase of shares by the corporation was not authorized by this act;

50 (c) upon payment to the corporation of the claim of any creditor by reason of a violation of paragraph 14A:6-12(1) (c), to be subrogated to the rights of the corporation against shareholders who received an improper distribution of assets; (d) upon payment to the corporation of the amount of any loan made improperly, to be subrogated to the rights of the corporation against the person who received the improper loan. (4) A director shall not be liable under this section if, in the circumstances, he discharged his duty to the corporation under section 14A:6-14. (5) Every action against a director for recovery upon a liability imposed by subsection 14A:6-12(1) shall be com- menced within six years next after the cause of any such action shall have accrued.

CASE NOTES

1. In an action challenging the distribution of proceeds from a sale of corporate assets, the court determined that corporate directors and stockholders had to pay the corporation's debt from moneys distributed from the sale of corporate assets, to corporate receiver who held judgment, because directors were statutory trustees and stockholders under former N.J. Rev. Stat. ß ß 14:13-5, 6 (now N.J. Stat. Ann. ß ß 14A:12-9 and 14A:6-12) and should have known that the money they received was subject to the unpaid debts of the corporation. Beatty v. Paterson-garfield-lodi Bus Co., 126 N.J. Eq. 472, 9 A.2d 686, 1939 N.J. Super. LEXIS 908 (N.J. Super. Ct. 1939).

N.J. Stat. ß 14A:6-14 (2006)

ß 14A:6-14. Liability of directors; reliance on records and reports

(1) Directors and members of any committee designated by the board shall discharge their duties in good faith and with that degree of diligence, care and skill which ordinarily prudent people would exercise under similar circumstances in like positions. (2) In discharging their duties, directors and members of any committee designated by the board shall not be liable if, acting in good faith, they rely (a) Upon the opinion of counsel for the corporation; (b) Upon written reports setting forth financial data concerning the corporation and prepared by an independent public accountant or certified public accountant or firm of such accountants; (c) Upon financial statements, books of account or reports of the corporation represented to them to be correct by the president, the officer of the corporation having charge of its books of account, or the person presiding at a meeting of the board; or (d) Upon written reports of committees of the board. (3) A director shall not be personally liable to the corporation or its shareholders for damages for breach of duty as a director if and to the extent that such liability has been eliminated or limited by a provision in the certificate of incorporation authorized by subsection (3) of N.J.S.14A:2-7. (4) In taking action, including, without limitation, action which may involve or relate to a change or potential change in the control of the corporation, a director shall be entitled to consider, without limitation, both the long-term and the short-term interests of the corporation and its shareholders. For the purpose of this subsection, "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of the corporation, whether through the ownership of voting shares, by contract or otherwise.

HISTORY: L. 1968, c. 350; Amended 1987, c. 35, ß 3; 1988, c. 94, ß 33; 1989, c. 17, ß 3.

CASE NOTES

52 1. Directors who failed to prevent other directors from misappropriating trust funds because they were unfamiliar with corporate business breached their fiduciary duty, and such negligence was proximate cause of resulting harm; and they were thus not in compliance with N.J. Stat. Ann. ß 14A:6-14. Francis v. United Jersey Bank, 87 N.J. 15, 432 A.2d 814, 1981 N.J. LEXIS 1652 (1981), criticized by Resolution Trust Corp. v. DiDomenico, 837 F. Supp. 623, 1993 U.S. Dist. LEXIS 16589 (D.N.J. 1993).

LAW REVIEWS

TITLE 14A. CORPORATIONS, GENERAL CHAPTER 7. SHARES AND DIVIDENDS

N.J. Stat. ß 14A:7-1 (2006)

ß 14A:7-1. Authorized shares

(1) Each corporation shall have power to create and issue the number of shares stated in its certificate of incorporation. Such shares may consist of one class or may be divided into two or more classes and any class may be divided into one or more series. Each class and series may have such designation and such relative voting, dividend, liquidation and other rights, preferences, and limitations as shall be stated in the certificate of incorporation, except that all shares of the same class shall be either without par value or shall have the same par value. Each class and series shall be designated so as to distinguish its shares from those of every other class and series. (2) In particular, and without limitation upon the general power granted by subsection 14A:7-1(1), a corporation, when so authorized in its certificate of incorporation, may issue classes of shares and series of shares of any class (a) entitling the holders thereof to cumulative, non-cumulative or partially cumulative dividends; (b) entitling the holders thereof to receive dividends payable on a parity with or in preference to the dividends payable on any other class or series; (c) entitling the holders thereof to preferential rights upon the liquidation of, or upon any distribution of the assets of, the corporation; (d) convertible as provided in section 14A:7-9; (e) redeemable as provided in section 14A:7-6; (f) lacking voting rights or having limited voting rights or enjoying special or multiple voting rights.

HISTORY: L. 1968, c. 350.

CASE NOTES

1. Under former N.J. Rev. Stat. ß 14:8-1 (now N.J. Stat. Ann. ß 14A:7-1), the power and authority exists under an original incorporation to create stock with full, limited, or no voting powers. Faunce v. Boost Co., 15 N.J. Super. 534, 83 A.2d 649, 1951 N.J. Super. LEXIS 741 (N.J. Super. Ct. 1951).

2. Under former N.J. Rev. Stat. ß 14:8-1 (now N.J. Stat. Ann. ß 14A:7-1), the power and authority exists under an original incorporation to create stock with full, limited, or no voting powers. Faunce v. Boost Co., 15 N.J. Super. 534, 83 A.2d 649, 1951 N.J. Super. LEXIS 741 (N.J. Super. Ct. 1951).

N.J. Stat. ß 14A:7-2 (2006)

ß 14A:7-2. Issuance of shares in classes and series; board action

(1) The division of shares into classes and into series within any class or classes, the determination of the designation and the number of shares of any class or series, the determination of the relative rights, preferences and limitations of the shares of any class or series, and any or all of such divisions and determinations, may be accomplished by the original certificate of incorporation or may be accomplished by an amendment or amendments thereto. Such an amendment may be made by any procedure to amend the certificate of incorporation provided for in Chapter 9 of this act or as provided in subsection 14A:7-2(2). (2) Such an amendment may be made by action of the board if the certificate of incorporation authorizes the board to make such divisions and determinations. Unless otherwise provided in the certificate of incorporation, authority granted to the board to determine the number of shares of any class or series shall be deemed to include the power to increase the number of shares of such class or series previously determined by it, and to decrease such previously determined number of shares to a number not less than that of the shares then outstanding. Upon any such decrease, the affected shares shall continue as part of the authorized shares and shall have such designation and such relative rights, preferences and limitations as they had before the board first acted to include them in such class or series. Unless otherwise provided in the certificate of incorporation, authority granted to the board to determine the relative rights and preferences of any class or series shall be deemed to include the power to determine relative rights and preferences which are prior or subordinate to, or equal with, the shares of any other class or series, whether or not such other shares are issued and outstanding at the time when the board acts to determine such relative rights and preferences. The certificate of incorporation may authorize the board to change the designation or number of shares, or the relative rights, preferences and limitations of the shares, of any theretofore established class or series no shares of which have been issued. (3) Whenever the board acts under subsection 14A:7-2(2) it shall adopt a resolution setting forth its actions and stating the designation and number of shares, and the relative rights, preferences and limitations of the shares, of each class and series thereby created or with respect to which it has made a determination or change. (4) Before the issue of any shares of a class or series with respect to which the board has acted under subsection 14A:7-2(2), the corporation shall execute and file in the office of the Secretary of State a certificate of amendment to the certificate of incorporation setting forth (a) the name of the corporation; (b) a copy of the resolution of the board required by subsection 14A:7-2(3); (c) that such resolution was duly adopted by the board and the date of such adoption; and (d) that the certificate of incorporation is amended so that the designation and number of shares of each class and series acted upon in the resolution, and the relative rights, preferences and limitations of each such class and series, are as stated in the resolution.

56 HISTORY: L. 1968, c. 350; Amended by L. 1973, c. 366, ß 30.

CASE NOTES

1. In an action to declare rights between a corporation and its shareholders, where the certificate of incorporation was clear and unambiguous, the certificate did not require construction and was not subject to the dividend credit rule. Leeds & Lippincott Co. v. Nevius, 51 N.J. Super. 343, 144 A.2d 4, 1958 N.J. Super. LEXIS 455 (N.J. Super. Ct. 1958), modified by 30 N.J. 281, 153 A.2d 45, 1959 N.J. LEXIS 176 (1959).

N.J. Stat. ß 14A:7-3 (2006)

ß 14A:7-3. Subscription for shares.

(1) Unless otherwise provided by the subscription agreement or unless all of the subscribers consent to the revocation of such subscription, a subscription for shares of a corporation to be formed shall be irrevocable for a period of six months if no certificate of incorporation shall be filed within such period. If the certificate of incorporation is filed within such period, or if it is filed at any later time before revocation, such subscription shall also be irrevocable until 60 days after the filing of the certificate of incorporation. Subscriptions for shares, whether made before or after the organization of a corporation, shall be accepted or rejected by the board, unless the certificate of incorporation or the bylaws require action by the shareholders. (2) (Deleted by amendment, P.L.1997, c.252.) (3) A subscriber shall not become a holder of any shares for which the full consideration has not been paid. Unless otherwise provided by the subscription agreement (a) Any payment made by the subscriber, in accordance with the subscription agreement or as called for by the board, shall be applied to pay the full consideration for as many whole shares as possible and any remaining balance of such payment shall be applied as part payment of a share; (b) A share certificate shall be registered in the name of the subscriber for the number of shares so paid for in full; and (c) The corporation shall be entitled to retain such share certificate as security for the performance by the subscriber of his obligations under the subscription agreement and subject to the power of sale or rescission upon default provided in paragraphs 14A:7-3(5)(b) and 14A:7-3(5)(c). (4) Unless otherwise provided by the subscription agreement (a) Subscriptions for shares, whether made before or after the organization of a corporation, shall be paid in full at such time, or in such installments and at such times, as shall be determined by the board; (b) Any call made by the board for payment on subscriptions shall be uniform as to all shares of the same class or as to all shares of the same series, as the case may be; (c) All such calls for payments on subscriptions shall be upon 30 days' notice thereof and of the time and place of payment, which notice shall be given personally or by registered or certified mail. (5) In the event of default in the payment of any installment or call or other amount due under the terms of the subscription agreement, including any amount which may become due as a result of a default in the performance of any provision thereof, the corporation shall have the following rights and duties:

58 (a) It may proceed to collect the amount due in the same manner as any other debt owing to it. At any time before full satisfaction of the claim or any judgment therefor, it may proceed as provided in paragraph 14A:7-3(5)(b). (b) It may sell the shares in any reasonable manner. Notice of the time and place of any public sale or of the time after which any private sale may be had, together with a statement of the amount due upon each share, shall be given in writing to the subscriber personally or by registered or certified mail at least 20 days before any such time stated in the notice. Unless otherwise provided in the subscription agreement, the corporation may not be the purchaser at any sale. Any excess of net proceeds realized over the amount due plus interest shall be paid over to the subscriber. If the sale is made in good faith, in a reasonable manner and upon the notice required by this paragraph, the corporation may recover the difference between the amount due plus interest and the net proceeds of the sale. A good faith purchaser for value shall acquire title to the sold shares free of any rights of the subscriber even though the corporation fails to comply with one or more of the requirements of this subsection. (c) It may rescind the subscription, with the effect provided in subsection 14A:7-3(6), and may recover damages for breach of contract. Unless special circumstances show proximate damages of a different amount, the measure of damages shall be the difference between the market price at the time and place for tender of the shares and the unpaid contract price. Liquidated damages may be provided for in the subscription agreement in an amount which is reasonable under the circumstances, including the difficulties of proof of loss. The subscriber shall be entitled to restitution of any amount by which the sum of his payments exceeds the corporation's damages for breach of contract, whether fixed by agreement or judgment. The rights and duties set forth in subsection 14A:7-3(5) shall be interpreted as cumulative so far as is consistent with the purpose of entitling the corporation to a full and single recovery of the amount due or its damages. The subscription agreement may limit the rights and remedies of the corporation set forth in subsection 14A:7-3(5), and may add to them so far as is consistent with the preceding sentence. (6) The rescission by the corporation of a subscription under which a portion of the shares subscribed for have been issued and in which the corporation retains a security interest, as provided in subsection 14A:7-3(3), shall effect the cancellation of such shares. (7) A contract made with a corporation to purchase its shares is a subscription agreement and not an executory contract to purchase shares, unless otherwise provided in the agreement.

HISTORY: L. 1968, c. 350; Amended 1973, c. 366, ß 31; 1988, c. 94, ß 35, 1997, c. 252, ß 20.

N.J. Stat. ß 14A:7-4 (2006)

ß 14A:7-4. Consideration for shares

(1) Subject to any restriction contained in the certificate of incorporation, shares may be issued for such consideration as shall be fixed from time to time by the board or as shall be determined in accordance with a general formula or at not less than such minimum consideration as the board shall authorize. (2) The shareholders may reserve in the certificate of incorporation the right to fix the consideration to be received for shares. If such right is reserved as to any shares, the shareholders shall either fix the consideration to be received for such shares or authorize the board to fix such consideration. (3) (Deleted by amendment, P.L. 1988, c. 94.) (4) (Deleted by amendment, P.L. 1988, c. 94.) (5) (Deleted by amendment, P.L. 1988, c. 94.) (6) A good faith judgment of the board of directors or the shareholders, as the case may be, as to the value of the consideration is conclusive.

CASE NOTES

1. Where the four owners of a corporations stock each held an equal number of shares and were each officers and directors of the corporation, the corporation could issue additional authorized voting stock to one of the stockholders as security for a loan to the corporation and such stockholder had the right to vote the shares in addition to the other shares he owned. Costabile v. Essex Linoleum & Carpet Co., 98 N.J. Super. 224, 236 A.2d 625, 1967 N.J. Super. LEXIS 388 (N.J. Super. Ct. 1967).

N.J. Stat. ß 14A:7-5 (2006)

ß 14A:7-5. Payment for shares; nonassessability

(1) Subject to any restrictions contained in the certificate of incorporation, the consideration for the issuance of shares may be paid, in whole or in part, in: (a) money, (b) real property,(c) tangible or intangible personal property, including stock of another corporation, and obligations of the subscriber or of another person, whether secured or unsecured, (d) labor or services actually performed for the corporation or in its formation, or (e) labor or services to be performed in the future for the corporation. A new employee's termination of employment with a prior employer or the employee's acceptance of employment with the corporation is adequate consideration for the issuance of shares. (2) When payment of the full consideration for which shares are to be issued is made, the subscriber shall thereupon become entitled to all the rights and privileges of a holder of such shares, including the registration in his name of a certificate representing them, and such shares shall be fully paid and nonassessable.

N.J. Stat. ß 14A:7-6 (2006)

ß 14A:7-6. Redeemable shares

(1) A corporation may provide in its certificate of incorporation for one or more classes or series of shares which are redeemable, in whole or in part, at the option of the corporation in cash, its bonds or other property, at such price or prices, within such period or periods, and under such conditions as are stated in the certificate of incorporation. A sink- ing fund may be created for the redemption of any class or series of redeemable shares. (2) A corporation which is an open-end investment company, as defined in an Act of Congress entitled "Investment Company Act of 1940," as amended or supplemented, or any act adopted in substitution therefor, may, if its certificate of incorporation so provides and upon compliance with that act, issue shares which are redeemable at the option of the holder at a price approximately equal to the shares' proportionate interest in the net assets of the corporation, and a shareholder may compel redemption of such shares in accordance with their terms. (3) A corporation may provide, in its certificate of incorporation for one or more classes or series of shares which are redeemable, in whole or in part, at the option of the shareholder. Subject to the restrictions imposed by section 14A:7-16, such shares may be redeemable in cash, bonds of the corporation or other property, at such price or prices, as are fixed, or established by formula, within such period or periods and under such conditions as are stated in the certificate of incorporation, and such shares may also be redeemable at the option of the corporation, as provided in subsection 14A:7-6(1). If any shares redeemable at the option of the shareholder are outstanding, the certificate of incorporation may be amended to delete or limit the provisions concerning redeemability with respect to those outstanding shares only with the unanimous approval of the holders of those shares. The provisions of this subsection shall not be applicable to an open-end investment company. (4) (Deleted by amendment, P.L. 1988, c. 94.)

HISTORY: L. 1968, c. 350; Amended 1969, c. 102, ß ß 8, 17; 1973, c. 366, ß 33; 1988, c. 94, ß 38.

CASE NOTES

1. Preferred stockholders were entitled to compel the redemption of preferred stock issued by a corporation, subject to cumulative dividends and redeemable at the expiration of 15 years from the date of issue, pursuant to the certificate of incorporation, the statute authorizing redemption, former N.J. Rev. Stat. ß 14:8-1 et seq. (now N.J. Stat. Ann. ß 14A:7- 1 et seq.), and the contract between the stockholders and the corporation; notwithstanding the corporation's assertion that it was not obliged to redeem its stock unless its directors accumulated enough cash for the purpose and decided that

62 the corporate enterprise would not be harmed by paying off the stock, the court found that the provision for redemption, that the stock "shall be redeemed" at the expiration of 15 years, imposed a positive obligation on the company and removed any privilege or option of redeeming the stock. Mueller v. Kraeuter & Co., 131 N.J. Eq. 475, 25 A.2d 874, 1942 N.J. Super. LEXIS 934 (N.J. Super. Ct. 1942).

N.J. Stat. ß 14A:7-8.1 (2006)

ß 14A:7-8.1. Par value of shares and stated capital.

(1) Unless otherwise provided in the certificate of incorporation, all shares shall have no par value and no stated capital shall be required to be maintained. (2) A corporation in its certificate of incorporation may specify a par value for any class or series of its shares, may require that a specified stated capital be maintained, or may impose any other capitalization requirements. A corporation which specifies in its certificate of incorporation the par value for its shares or a specified stated capital shall not be subject to any limitations on distributions other than those set forth in section 14A:7-14.1, unless other restrictions are set forth in the certificate of incorporation. (3) If for any reason the laws of this State or those of any other jurisdiction require that the par value of shares or stated capital of a corporation be ascertained, then solely for that purpose a domestic corporation which has not otherwise made express provision therefor in its certificate of incorporation shall be deemed to have declared and be entitled to declare that its capital stock has a par value of one mill per share and a stated capital of one mill times the number of shares then outstanding.

HISTORY: L. 1988, c. 94, ß 40.

N.J. Stat. ß 14A:7-14.1 (2006)

ß 14A:7-14.1. Limitations on distributions to shareholders

(1) "Distribution" means a direct or indirect transfer of money or other property (except its own shares) or incurrence of indebtedness by a corporation to or for the benefit of its shareholders in respect of any of its shares. A distribution may be in the form of a dividend, a purchase, redemption or other acquisition of its shares, or otherwise. (2) A corporation may not make a distribution if, after giving effect thereto, either: (a) The corporation would be unable to pay its debts as they become due in the usual course of its business; or (b) The corporation's total assets would be less than its total liabilities. (3) Determinations under paragraph 14A:7-14.1(2)(b) may be based upon (i) financial statements prepared on the basis of generally accepted accounting principles, (ii) financial statements prepared on the basis of other accounting practices and principles that are reasonable in the circumstances, or (iii) a fair valuation or other method that is reasonable in the circumstances. (4) In the case of a purchase, redemption or other acquisition by a corporation of its own shares, the effect of a distribution shall be measured as of the earlier of (i) the date money or other property is transferred or debt is incurred by the corporation, or (ii) the date the shareholder ceases to be a shareholder with respect to the acquired shares. In all other cases, the effect of a distribution shall be measured (i) as of the date of its authorization if payment occurs 120 days or less following the date of authorization, or (ii) as of the date of payment if payment occurs more than 120 days following the date of authorization. (5) A corporation's indebtedness to a shareholder incurred by reason of a distribution made in accordance with this section shall not be subordinated to the corporation's indebtedness to its general, unsecured creditors except to the extent subordinated by agreement.

HISTORY: L. 1988, c. 94, ß 44.

N.J. Stat. ß 14A:7-15 (2006)

ß 14A:7-15. Authority to pay dividends

(1) Subject to any restrictions contained in the certificate of incorporation and to the provisions of section 14A:7-14.1, a corporation may, from time to time, by resolution of its board, pay dividends on its shares in cash, in its own shares, in its bonds or in other property, including the shares or bonds of other corporations. (2) (Deleted by amendment, P.L. 1988, c. 94.) (3) (Deleted by amendment, P.L. 1988, c. 94.) (4) (Deleted by amendment, P.L. 1988, c. 94.) (5) Unless the certificate of incorporation otherwise provides, a dividend may be paid in shares having a preference in the assets of the corporation upon liquidation, whether or not the net assets at the time of the share dividend are less than the aggregate amount of such prior and newly created preferences. (6) (Deleted by amendment, P.L. 1988, c. 94.)

CASE NOTES

1. Corporate business is to be managed by its directors and, unless otherwise provided in the charter or by-law the directors may, in their discretion by authority of former N.J. Rev. Stat. ß 14:8-20 (now N.J. Stat. Ann. ß 14A:7-15) determine what dividends shall be declared and paid. L. L. Constantin & Co. v. R. P. Holding Corp., 56 N.J. Super. 411, 153 A.2d 378, 1959 N.J. Super. LEXIS 406 (N.J. Super. Ct. 1959).

2. In light of the statutory discretion of the board of directors of the corporation provided for under former N.J. Rev. Stat. ß 14:8-20 (now N.J. Stat. Ann. ß 14A:7-15), the language of the by-laws, the attitude of the judiciary against im- plied repealer, and the absence of "clear and peremptory" denial of the directors' statutory right to discretionary control of dividends, it was held that an amendment of the corporation's certificate of incorporation by addition of the statement that "the holders of the preferred stick shall be entitled to receive, and the company shall be bound to pay" did not make

66 the payment of a dividend mandatory if net profits were available. L. L. Constantin & Co. v. R. P. Holding Corp., 56 N.J. Super. 411, 153 A.2d 378, 1959 N.J. Super. LEXIS 406 (N.J. Super. Ct. 1959).

3. In light of the statutory discretion of the board of directors of the corporation provided for under former N.J. Rev. Stat. ß 14:8-20 (now N.J. Stat. Ann. ß 14A:7-15), the language of the by-laws, the attitude of the judiciary against im- plied repealer, and the absence of "clear and peremptory" denial of the directors' statutory right to discretionary control of dividends, it was held that an amendment of the corporation's certificate of incorporation by addition of the statement that "the holders of the preferred stick shall be entitled to receive, and the company shall be bound to pay" did not make the payment of a dividend mandatory if net profits were available. L. L. Constantin & Co. v. R. P. Holding Corp., 56 N.J. Super. 411, 153 A.2d 378, 1959 N.J. Super. LEXIS 406 (N.J. Super. Ct. 1959).

N.J. Stat. ß 14A:7-15.1 (2006)

ß 14A:7-15.1. Share dividends, share divisions and combinations

(1) A corporation may effect a share dividend or a division or combination of its shares in the manner hereinafter set forth. As used in this section, the terms "division" and "combination" mean dividing or combining shares of any class or series, whether issued or unissued, into a greater or lesser number of shares of the same class or series. (2) Except as otherwise provided in the certificate of incorporation, a share dividend, a division or combination may be effected by action of the board alone; except that any division which adversely affects the shares of another class shall be made by amendment. The board in effecting a share dividend, combination or division shall have authority to amend the certificate of incorporation to increase or decrease the par value of shares, increase or decrease the number of authorized shares and to make any other change necessary or appropriate to assure that the rights or preferences of the holders of outstanding shares of any class or series will not be adversely affected by such combination or division. Notwithstanding the foregoing sentence, the board shall not have the authority to amend the certificate of incorporation, and shareholder approval for the amendment shall be required in accordance with subsection 14A:9-2(4) and section 14A:9-3, if as a result of the amendment: (a) The rights or preferences of the holders of outstanding shares of any class or series will be adversely affected; or (b) The percentage of authorized shares that remains unissued after the share dividend, division or combination will exceed the percentage of authorized shares that was unissued before the share dividend, division or combination. (3) If a share dividend, division or combination is effected by board action without shareholder approval and includes an amendment of the certificate of incorporation, there shall be executed on behalf of the corporation and filed in the office of the Secretary of State a certificate of amendment setting forth (a) The name of the corporation; (b) The date of adoption by the board of the resolution approving the dividend, division or combination; (c) That the amendment to the certificate of incorporation will not adversely affect the rights or preferences of the holders of outstanding shares of any class or series and will not result in the percentage of authorized shares that remains unissued after the share dividend, division or combination exceeding the percentage of authorized shares that was unissued before the share dividend, division or combination; (d) The class or series and number of shares thereof subject to the dividend, division or combination and the number of shares to be issued on the dividend or into which they are to be divided or combined; (e) The amendment of the certificate of incorporation made in connection with the dividend, division or combination; and (f) If the dividend, division or combination is to become effective at a time subsequent to the time of filing, the date, which may not exceed 90 days from the date of filing, when the same is to become effective.

68 (4) If a share dividend, division or combination is effected by action of the board and the shareholders, there shall be executed on behalf of the corporation and filed in the office of the Secretary of State a certificate of amendment as provided in subsection 14A:9-4(3), which certificate shall set forth, in addition to all information required by said subsection, the information required by paragraph 14A:7-15.1(3)(d). (5) Upon a combination becoming effective, the authorized shares of the class or series subject thereto shall be reduced by the same percentage by which the issued shares of such class or series were reduced as a result of the combination unless the certificate of incorporation otherwise provides or the combination was approved by the shareholders in accordance with subsection 14A:9-2(4) and section 14A:9-3. (6) (Deleted by amendment, P.L.1988, c.94.)

HISTORY: L. 1973, c. 366, ß 38; Amended 1988, c. 94, ß 46; 1995, c. 279, ß 8.

N.J. Stat. ß 14A:7-16 (2006)

ß 14A:7-16. Acquisitions of a corporation's own shares

(1) Subject to the provisions of section 14A:7-14.1, a corporation may acquire its own shares. (2) (Deleted by amendment, P.L.1988, c.94.) (3) (Deleted by amendment, P.L.1988, c.94.) (4) (Deleted by amendment, P.L.1988, c.94.) (5) No acquisition of its own shares shall be made by a corporation (a) Contrary to any restrictions contained in the certificate of incorporation; (b) (Deleted by amendment, P.L.1988, c.94.) (c) Unless after such acquisition there remain outstanding one or more classes or series of shares possessing, among them collectively, voting rights and unlimited residual rights as to dividends and distribution of assets on liquidation; or (d) In the case of redeemable shares and within the period of their redeemability, at a price greater than the applicable redemption price plus, in the case of shares entitled to cumulative dividends, the dividends which would have accrued to the next dividend date following the date of acquisition. (6) (Deleted by amendment, P.L.1988, c.94.) (7) Unless the certificate of incorporation otherwise provides, a corporation may acquire its shares whether or not the net assets remaining after the transaction are less than the aggregate amount of the preferences of outstanding shares in the assets of the corporation upon liquidation. (8) In connection with an agreement to acquire its shares, a corporation may grant a security interest in the acquired shares to secure an obligation to pay for the acquisition. The shares shall not be deemed to be reacquired by the corporation and cancelled on its books until the obligation of the corporation is fully paid or discharged. (9) A corporation may acquire or agree to acquire its shares, notwithstanding that the acquisition would constitute a distribution prohibited under section 14A:7-14.1, if all or part of the purchase price is deferred until such time as the payment would not constitute a prohibited distribution.

TITLE 14A. CORPORATIONS, GENERAL CHAPTER 11. DISSENTING SHAREHOLDERS

N.J. Stat. ß 14A:11-1 (2006)

ß 14A:11-1. Right of shareholders to dissent

(1) Any shareholder of a domestic corporation shall have the right to dissent from any of the following corporate actions (a) Any plan of merger or consolidation to which the corporation is a party, provided that, unless the certificate of incorporation otherwise provides (i) a shareholder shall not have the right to dissent from any plan of merger or consolidation with respect to shares (A) of a class or series which is listed on a national securities exchange or is held of record by not less than 1,000 holders on the record date fixed to determine the shareholders entitled to vote upon the plan of merger or consolidation; or (B) for which, pursuant to the plan of merger or consolidation, he will receive (x) cash, (y) shares, obligations or other securities which, upon consummation of the merger or consolidation, will either be listed on a national securities exchange or held of record by not less than 1,000 holders, or (z) cash and such securities; (ii) a shareholder of a surviving corporation shall not have the right to dissent from a plan of merger, if the merger did not require for its approval the vote of such shareholders as provided in section 14A:10-5.1 or in subsection 14A:10- 3(4), 14A:10-7(2) or 14A:10-7(4); (iii) a shareholder of a corporation shall not have the right to dissent from a plan of merger, if the merger did not require, for its approval, the vote of the shareholders as provided in subsection (6) of N.J.S. 14A:10-3; or (b) Any sale, lease, exchange or other disposition of all or substantially all of the assets of a corporation not in the usual or regular course of business as conducted by such corporation, other than a transfer pursuant to subsection (4) of N.J.S. 14A:10-11, provided that, unless the certificate of incorporation otherwise provides, the shareholder shall not have the right to dissent (i) with respect to shares of a class or series which, at the record date fixed to determine the shareholders entitled to vote upon such transaction, is listed on a national securities exchange or is held of record by not less than 1,000 holders; or (ii) from a transaction pursuant to a plan of dissolution of the corporation which provides for distribution of substantially all of its net assets to shareholders in accordance with their respective interests within one year after the date of such transaction, where such transaction is wholly for (A) cash; or (B) shares, obligations or other securities which, upon consummation of the plan of dissolution will either be listed on a national securities exchange or held of record by not less than 1,000 holders; or

71 (C) cash and such securities; or (iii) from a sale pursuant to an order of a court having jurisdiction. (2) Any shareholder of a domestic corporation shall have the right to dissent with respect to any shares owned by him which are to be acquired pursuant to section 14A:10-9. (3) A shareholder may not dissent as to less than all of the shares owned beneficially by him and with respect to which a right of dissent exists. A nominee or fiduciary may not dissent on behalf of any beneficial owner as to less than all of the shares of such owner with respect to which the right of dissent exists. (4) A corporation may provide in its certificate of incorporation that holders of all its shares, or of a particular class or series thereof, shall have the right to dissent from specified corporate actions in addition to those enumerated in subsection 14A:11-1(1), in which case the exercise of such right of dissent shall be governed by the provisions of this Chapter.

CASE NOTES

1. Pursuant to N.J. Stat. Ann. ß 14A:11-1(1)(a), where the stockholders of a corporation which was party to a merger were to be paid in cash, the stockholders did not have the right to dissent to the terms of the merger, and did not have any statutory rights to prevent the merger from taking place. Berkowitz v. Power/mate Corp., 135 N.J. Super. 36, 342 A.2d 566, 1975 N.J. Super. LEXIS 674 (N.J. Super. Ct. 1975).

2. Dissemination of an inaccurate or misleading proxy statement by the corporation in conjunction with a cash-out merger that set forth an inadequate cash-out price was sufficient to allow the shareholders to challenge the merger, or claim fair compensation for their shares, unless they were otherwise precluded by some other statute, doctrine, rule, or law. Casey v. Brennan, 344 N.J. Super. 83, 780 A.2d 553, 2001 N.J. Super. LEXIS 331 (App.Div. 2001), affirmed by 173 N.J. 177, 801 A.2d 245, 2002 N.J. LEXIS 1071 (2002).

3. Relief under the oppressed minority shareholder statute, N.J. Stat. Ann. ß 14A:11-1 et seq., contemplated the continued existence or dissolution of the corporate entity; accordingly, an allegedly oppressed minority shareholder whose personal claims survived a bankruptcy and reorganization of corporations, which included the sale of the corporate entities to another, had no ability to seek relief against the majority shareholder as to personal liability against him. Weil v. Express Container Corp., 360 N.J. Super. 599, 824 A.2d 174, 2003 N.J. Super. LEXIS 174 (App.Div. 2003).

4. While a marketability discount was generally not applied to corporate shares in a corporate restructure, where dissenting shareholders had exploited the transaction giving rise to an appraisal so as to divert value to themselves, such discount was properly applicable to their shares' fair value. Lawson Mardon Wheaton, Inc. v. Smith, 315 N.J. Super. 32, 716 A.2d 550, 1998 N.J. Super. LEXIS 375 (N.J. Super. Ct. App. Div. 1998).

5. Mere disposal of a physical plant and equipment in and of itself did not bring the transfer within the statute; in order for a shareholder to exercise a dissenter's rights, there had to be a sale or exchange of all or substantially all of the corporation's property and assets, including its good will. Good v. Lackawanna Leather Co., 96 N.J. Super. 439, 233 A.2d 201, 1967 N.J. Super. LEXIS 502 (N.J. Super. Ct. 1967).

72 6. Court denied litigant's request that the court substitute itself for appraisers because appraising value of dissenting stockholdings was not a judicial function under former N.J. Rev. Stat. ß 14:3-5 (now N.J. Stat. Ann. ß 14A:11-1) and former N.J. Stat. Ann. ß 14:12-7 (now N.J. Stat. Ann. ß 14A:11-8). Bohrer v. United States Lines Co., 92 N.J. Super. 592, 224 A.2d 348, 1966 N.J. Super. LEXIS 542 (N.J. Super. Ct. 1966).

TITLE 14A. CORPORATIONS, GENERAL CHAPTER 11. DISSENTING SHAREHOLDERS

N.J. Stat. ß 14A:11-5 (2006)

ß 14A:11-5. Rights of dissenting shareholder

(1) A dissenting shareholder may not withdraw his demand for payment of the fair value of his shares without the written consent of the corporation. (2) The enforcement by a dissenting shareholder of his right to receive payment for his shares shall exclude the enforcement by such dissenting shareholder of any other right to which he might otherwise be entitled by virtue of share ownership, except as provided in subsection 14A:11-4(2) and except that this subsection shall not exclude the right of such dissenting shareholder to bring or maintain an appropriate action to obtain relief on the ground that such corporate action will be or is ultra vires, unlawful or fraudulent as to such dissenting shareholder.

HISTORY: L. 1968, c. 350.

TITLE 14A. CORPORATIONS, GENERAL CHAPTER 12. DISSOLUTION

N.J. Stat. ß 14A:12-4 (2006)

ß 14A:12-4. Dissolution pursuant to action of board and shareholders

(1) A corporation may be dissolved by action of its board and its shareholders as provided in this section. (2) The board shall recommend that the corporation be dissolved, and direct that the question of dissolution be submitted to a vote at a meeting of shareholders. (3) Written notice of the meeting shall be given not less than 10 nor more than 60 days before the meeting to each shareholder of record whether or not entitled to vote at such meeting in the manner provided in this act for the giving of notice of meetings of shareholders. (4) At such meeting, a vote of the shareholders shall be taken on the proposed dissolution. Such dissolution shall be approved upon receiving the affirmative vote of a majority of the votes cast by the holders of shares of the corporation entitled to vote thereon, and, in addition, if any class or series is entitled to vote thereon as a class, the affirmative vote of a majority of the votes cast in each class vote; except that, in the case of a corporation organized prior to the effective date of this act, the proposed dissolution shall be approved upon receiving the affirmative vote of two-thirds of the votes so cast. The voting requirements of this section shall be subject to such greater requirements as may be provided in the certificate of incorporation. (5) Subject to the provisions of section 14A:5-12, a corporation organized prior to January 1, 1969 may adopt the majority voting requirements prescribed in subsection 14A:12-4(4) by an amendment of its certificate of incorporation adopted by the affirmative vote of two-thirds of the votes cast by the holders of shares entitled to vote thereon. (6) If dissolution is approved as provided in this section, a certificate of dissolution shall be executed on behalf of the corporation and shall be filed in the office of the Secretary of State. The certificate shall set forth (a) the name of the corporation; (b) the name of the registered agent of the corporation; (c) the location of the registered office of the corporation; (d) the names of the corporation's directors and officers; (e) the text of the board resolution authorizing the dissolution; (f) the date and place of the meeting of shareholders called to vote upon the dissolution; (g) the number of outstanding shares of the corporation entitled to vote on the dissolution, and, if the shares of any class or series are entitled to vote as a class, the designation and number of outstanding shares of each such class and series; and

75 (h) the number of shares represented at the meeting, the number of shares voted for and voted against the dissolution, and, if the shares of any class or series are entitled to vote as a class, the number of shares of each such class and series voted for and voted against the dissolution.

N.J. Stat. ß 14A:12-7 (2006)

ß 14A:12-7. Involuntary dissolution; other remedies

(1) The Superior Court, in an action brought under this section, may appoint a custodian, appoint a provisional director, order a sale of the corporation's stock as provided below, or enter a judgment dissolving the corporation, upon proof that (a) The shareholders of the corporation are so divided in voting power that, for a period which includes the time when two consecutive annual meetings were or should have been held, they have failed to elect successors to directors whose terms have expired or would have expired upon the election and qualification of their successors; or (b) The directors of the corporation, or the person or persons having the management authority otherwise in the board, if a provision in the corporation's certificate of incorporation contemplated by subsection 14A:5-21(2) is in effect, are unable to effect action on one or more substantial matters respecting the management of the corporation's affairs; or (c) In the case of a corporation having 25 or less shareholders, the directors or those in control have acted fraudu- lently or illegally, mismanaged the corporation, or abused their authority as officers or directors or have acted oppres- sively or unfairly toward one or more minority shareholders in their capacities as shareholders, directors, officers, or employees. (2) An action may be brought under this section by one or more directors or by one or more shareholders. In such action, in the case of appointment of a custodian or a provisional director, the court may proceed in a summary manner or otherwise. (3) One or more provisional directors may be appointed if it appears to the court that such an appointment may be in the best interests of the corporation and its shareholders, notwithstanding any provisions in the corporation's by-laws, certificate of incorporation, or any resolutions adopted by the board or shareholders. A provisional director shall have all the rights and powers of a duly elected director of the corporation, including the right to notice of and to vote at meetings of directors, until such time as he shall be removed by order of the court or, unless otherwise ordered by the court, by a vote or written consent of a majority of the votes entitled to be cast by the holders of shares entitled to vote to elect directors. (4) A custodian may be appointed if it appears to the court that such an appointment may be in the best interests of the corporation and its shareholders, notwithstanding any provisions in the corporation's by-laws, certificate of incorporation, or any resolutions adopted by the shareholders or the board. Subject to any limitations which the court imposes, a custodian shall be entitled to exercise all of the powers of the corporation's board and officers to the extent necessary to manage the affairs of the corporation in the best interests of its shareholders and creditors, until such time as he shall be removed by order of the court or, unless otherwise ordered by the court, by the vote or written consent of a majority of the votes entitled to be cast by the holders of shares entitled to vote to elect directors. Such powers may be exercised directly or through, or in conjunction with, the corporation's board or officers, in the discretion of the custodian or as the

77 court may order. If so provided in the order appointing him, a custodian shall have the fact-determining powers of a receiver as provided in subsections 14A:14-5 (e) and (f). (5) Any custodian or provisional director shall be an impartial person who is neither a shareholder nor a creditor of the corporation or of any subsidiary or affiliate of the corporation. (6) Any custodian or provisional director shall report from time to time to the court concerning the matter complained of, or the status of the deadlock, if any, and of the status of the corporation's business, as the court shall direct. In addition, he shall submit to the court, if so directed, his recommendations as to the appropriate disposition of the action. If, after the appointment of a custodian or provisional director, the court determines that a judgment of dissolution is in the best interests of the shareholders of the corporation, such a judgment shall be entered. The court may continue any custodian or provisional director in such office subsequent to the entry of a judgment of dissolution and until such time as the affairs of the corporation are wound up, or it may appoint such person or another as receiver, as provided in section 14A:12-15. (7) In any proceeding under this section, the court shall allow reasonable compensation to the custodian or provisional director for his services and reimbursement or direct payment of his reasonable costs and expenses which amounts shall be paid by the corporation. (8) Upon motion of the corporation or any shareholder who is a party to the proceeding, the court may order the sale of all shares of the corporation's stock held by any other shareholder who is a party to the proceeding to either the corporation or the moving shareholder or shareholders, whichever is specified in the motion, if the court determines in its discretion that such an order would be fair and equitable to all parties under all of the circumstances of the case. (a) The purchase price of any shares so sold shall be their fair value as of the date of the commencement of the action or such earlier or later date deemed equitable by the court, plus or minus any adjustments deemed equitable by the court if the action was brought in whole or in part under paragraph 14A:12-7(1)(c). (b) Within five days after the entry of any such order, the corporation shall provide each selling shareholder with the information it is required to provide a dissenting shareholder under section 14A:11-6, and within 10 days after entry of the order the purchasing party shall make a written offer to purchase at a price deemed by the purchasing party to be the fair value of the shares. (c) If the parties are unable to agree on fair value within 40 days of entry of the order, the court shall make the determination of the fair value, and the provisions of sections 14A:11-8 through 14A:11-11 shall be followed insofar as they are applicable. (d) Interest may be allowed at the rate and from the date determined by the court to be equitable, and if the court finds that the refusal of the shareholder to accept any offer of payment was arbitrary, vexatious, or otherwise not in good faith, no interest shall be allowed. If the court finds that the action was maintainable under paragraph 14A:12-7(1) (c), the court in its discretion may award to the selling shareholder or shareholders reasonable fees and expenses of counsel and of any experts, including accountants, employed by them. (e) The purchase price shall be paid by the delivery of cash, notes, or other property, or any combination thereof within 30 days after the court has determined the fair value of the shares. The court shall, in its discretion, determine the method of payment of the purchase price. Whenever practicable, the purchase price shall be paid entirely in cash. If the court determines that an all cash payment is not practicable, it shall determine the amount of the cash payment, the kind and amount of any property, whether any note shall be secured, and other appropriate terms, including the interest rate of any note. (f) Upon entry of an order for the sale of shares under this subsection, and provided the corporation or the moving shareholders post a bond in adequate amount with sufficient sureties or otherwise satisfy the court that the full purchase price of the shares, plus whatever additional costs, expenses, and fees as may be awarded, will be paid when due and payable, the selling shareholders shall no longer have any rights or status as shareholders, officers, or directors, except the right to receive the fair value of their shares plus whatever other amounts as may be awarded. In such event, the court may remove any custodian or provisional director who may have been appointed. (9) In determining whether to enter a judgment of dissolution in an action brought under this section, the court shall take into consideration whether the corporation is operating profitably and in the best interests of its shareholders, but shall not deny entry of such a judgment solely on that ground.

78 (10) If the court determines that any party to an action brought under this section has acted arbitrarily, vexatiously, or otherwise not in good faith, it may in its discretion award reasonable expenses, including counsel fees incurred in connection with the action, to the injured party or parties.

HISTORY: L. 1968, c. 350; Amended 1973,c.366,s.67; 1988,c.94,s.69.

CASE NOTES

1. Although former N.J. Rev. Stat. ß 14:12-7 (now N.J. Stat. Ann. ß 14A:12-7) was to be liberally construed to effect the simple and prompt remedy contemplated and to avert what might otherwise be a serious injustice to minority stockholders, the most liberal construction of the statutory language could not justify the implication of obligations upon the consolidated corporation either to pay interest or to pay all the costs and expenses of the proceeding, nor did the statute give the court discretion to impose them upon the corporation. Further, former N.J. Rev. Stat. ß 14:12-7 (now N.J. Stat. Ann. ß 14A:12-7) inferentially excluded any interest from accruing during the period before the amount of the award became a judgment and as well any intention that the burden of costs and expenses was to be borne solely by the consolidated corporation. In re Janssen Dairy Corp., 2 N.J. Super. 580, 64 A.2d 652, 1949 N.J. Super. LEXIS 1053 (N.J. Super. Ct. 1949).

2. In determining the "fair value" of shares of a shareholder forced to sell his stock in a judicially ordered buy-out under the Oppressed Shareholder Statute, N.J. Stat. Ann. ß 14A:12-7 et seq., a nonmarketability discount from intrinsic value was equitable for stock in a closely-held corporation. Balsamides v. Protameen Chems., Inc., 160 N.J. 352, 734 A.2d 721, 1999 N.J. LEXIS 836 (1999).

3. Valuation of stock in a close corporation cannot realistically be limited to its book value, but must deal with the realities of good will, actual profit, and, if necessary, the discounting of the value of a minority interest. Balsamides v. Perle, 313 N.J. Super. 7, 712 A.2d 673, 1998 N.J. Super. LEXIS 281 (N.J. Super. Ct. App. Div. 1998).

4. Where minority shareholder established more than one of the grounds for relief specified in N.J. Stat. Ann. ß 14A:12-7(1)(c), in suit against closely held corporation, directors, and officers and wanted to sell minority shareholder's shares or to buy majority's shares, and closely held corporation, directors, and officers did not wish to have the corporation dissolved, the judge could have directed closely held corporation, directors, and officers to file a motion pursuant to N.J. Stat. Ann. ß 14A:12-7(8) seeking to purchase minority shareholder's shares to avoid possible dissolution of the corporation. Brenner v. Berkowitz, 261 N.J. Super. 63, 617 A.2d 1225, 1992 N.J. Super. LEXIS 428 (N.J. Super. Ct. 1992), reversed by 134 N.J. 488, 634 A.2d 1019, 1993 N.J. LEXIS 1310 (1993).

5. Trial court was not authorized under N.J. Stat. Ann. ß 14A:12-7 in action involving dispute between shareholders of closed corporation, to order the sale of a party's shares as none of the "triggering" events set forth in sections (1)(a, (b), or (c) of the statute had taken place. Bostock v. High Tech Elevator Indus., Inc., 260 N.J. Super. 432, 616 A.2d 1314, 1992 N.J. Super. LEXIS 420 (N.J. Super. Ct. 1992).

6. Trial court erred in fixing the buyout price of a partners' shares pursuant to to N.J. Stat. Ann. ß 14A:12-7(8) by adopting the formula contained in the parties' buy-sell agreement to value the stock; the trial court should have properly determined the fair value by adopting the appraisal report or by ascertaining fair value in another way. Hughes v. Sego In- t'l, Ltd., 192 N.J. Super. 60, 469 A.2d 74, 1983 N.J. Super. LEXIS 968 (N.J. Super. Ct. 1983).

7. Where a trial court ordered one shareholder to sell his stock to the other 50 percent owner of a close corporation, an appellate court had reservations about the use of the excess earnings approach of Rev. Rul. 68-609, 1968-2 C.B. 327 to value the stock and noted that most courts have used Rev. Rul. 59-60, 1959-1 C.B. 237 as a guide; further, in a valuation under N.J. Stat. Ann. ß 14A:12-7(8)(a), the court had to deal with the realities of good will, actual profit, and the relationship of the relevant factors on the basis of informed judgment and common sense. Balsamides v. Perle, 313 N.J. Su- per. 7, 712 A.2d 673, 1998 N.J. Super. LEXIS 281 (N.J. Super. Ct. App. Div. 1998).

8. In an action under N.J. Stat. Ann. ß 14A:12-7(1)(c), it was neither "fair" nor "equitable" for a surviving shareholder to obtain a selling shareholder's interest at a discount; N.J. Stat. Ann. ß 14A:12-7(8)(a) did not warrant a departure from the sensible approach that would decline to apply a discount for lack of marketability when one owner of a close corporation transferred his interests to another owner, who in turn became the corporation's sole shareholder. Balsamides v. Perle, 313 N.J. Super. 7, 712 A.2d 673, 1998 N.J. Super. LEXIS 281 (N.J. Super. Ct. App. Div. 1998).

9. Where a trial court made no determination on plaintiff's demand for attorney fees under N.J. Stat. Ann. ß 14A:12- 7(10) in an action under ß 14A:12-7(1)(c), the matter was remanded for consideration of the issue; further, because plaintiff failed to comply with N.J. Ct. R. 4:42-9(b) by not providing a detailed affidavit or certification of services, plaintiff was ordered to remedy the defect on remand. Balsamides v. Perle, 313 N.J. Super. 7, 712 A.2d 673, 1998 N.J. Super. LEXIS 281 (N.J. Super. Ct. App. Div. 1998).

10. In an action that sought dissolution of a corporation, the trial court's holding that the oppression and unfairness standards of N.J. Stat. Ann. ß 14A:12-7(1)(c) were satisfied was premature and therefore erroneous as a matter of law; it was not necessary for the trial court to order the extreme remedy of a buy-out and less drastic remedies should have been ordered as a first step. Muellenberg v. Bikon Corp., 277 N.J. Super. 67, 648 A.2d 1161, 1994 N.J. Super. LEXIS 438 (N.J. Super. Ct. App. Div. 1994), reversed by 143 N.J. 168, 669 A.2d 1382, 1996 N.J. LEXIS 4 (1996).

11. Trial judge was without authority to force stockholder, who had filed a suit seeking control of the corporation, to sell his stock under N.J. Stat. Ann. ß 14A:12-7(8) because the action was not brought under N.J. Stat. Ann. ß 14A:12- 7(1) which provided for involuntary dissolution and stockholder did not seek dissolution. Gershaw v. Ther-a-pedic Sleep Prods., Inc., 218 N.J. Super. 350, 527 A.2d 923, 1987 N.J. Super. LEXIS 1228 (N.J. Super. Ct. 1987).

12. Where a corporation was unable to function in the manner ordained by law, public policy required its dissolution; the test was not whether routine business was carried on, or whether business was conducted at a profit or a loss, but whether there was a paralysis of corporate function. In re Evening Journal Ass'n, 15 N.J. Super. 58, 83 A.2d 38, 1951 N.J. Super. LEXIS 681 (N.J. Super. Ct. 1951).

13. Unless there was a solution to the problems that existed between the owners and the management of the corporation within 15 days of the court's opinion, the owners' action to dissolve the corporation pursuant to former N.J. Rev. Stat. ß 14:13-15 (now N.J. Stat. Ann. ß 14A:12-7) would be granted because ß 14:13-15 was designed to operate when there was a stalemate in corporate management, all the requisites of former ß 14:13-15 (now N.J. Stat. Ann. ß 14A:12-7) had been met, and a failure of the management had arisen within the terms of former ß 14:13-15 (now N.J. Stat. Ann. ß 14A:12-7). Rko Theatres, Inc. v. Trenton-new Brunswick Theatres Co., 9 N.J. Super. 401, 74 A.2d 914, 1950 N.J. Super. LEXIS 613 (N.J. Super. Ct. 1950).

14. Corporation was properly dissolved because a perpetual deadlock of the four person board prevented the election of a new, odd-numbered board, or the taking of any other action to resolve basic corporate governance disputes. Petition of Collins-doan Co., 3 N.J. 382, 70 A.2d 159, 1949 N.J. LEXIS 222, 13 A.L.R.2d 1250 (1949).

15. By passing former N.J. Rev. Stat. ß 14:13-15 (now N.J. Stat. Ann. ß 14A:12-7), the Legislature had said, in effect, that it was not in the public interest to permit a corporation which, by reason of the irreconcilable differences of the evenly divided board of directors, to continue to function by disregarding the laws governing corporate activities, and had, in the act, provided a cure. Such action was within the power of the Legislature, and by virtue of the provisions of

80 former N.J. Rev. Stat. ß 14:2-8, ß 14:13-15 (now N.J. Stat. Ann. ß 14A:1-3, ß 14A:12-7) was applicable to the company in question. In re Collins-Doan Co., 1 N.J. Super. 441, 61 A.2d 913, 1948 N.J. Super. LEXIS 493 (N.J. Super. Ct. 1948), reversed by 4 N.J. Super. 385, 67 A.2d 353, 1949 N.J. Super. LEXIS 815 (N.J. Super. Ct. 1949).

16. In rare circumstances, the New Jersey Corporation Business Act, N.J. Stat. Ann. ß 14A:12-7(1)(c) and (8), authorize a buy-out of the majority shareholders. Muellenberg v. Bikon Corp., 143 N.J. 168, 669 A.2d 1382, 1996 N.J. LEXIS 4 (1996).

17. Minority shareholders prevailed against the corporation alleging that they were subject to unfair and oppressive conduct pursuant to N.J. Stat. Ann. ß 14A:12-7; minority shareholders had a statutory right to request and examine records of the closely held corporation's receipts and disbursements of corporate funds, and corporation's inadequate accounting justified reversal or corporation's grant of summary. Kelley v. Axelsson, 296 N.J. Super. 426, 687 A.2d 268, 1997 N.J. Super. LEXIS 8 (N.J. Super. Ct. App. Div. 1997).

18. Shareholder's claim against corporation that alleged a corporate "deadlock" pursuant to N.J. Stat. Ann. ß 14A:12- 7(1)(a) was improper because the shareholder had long acquiesced in a board composed of two directors, rather than three, and had voted to amend the by-laws to authorize such a board, and an attempt to change that position have raised substantial issues of waiver and estoppel; even assuming a requirement for three directors, there was no demonstration that the two shareholders could not agree on some neutral third party for the additional director's position. Bonavita v. Corbo, 300 N.J. Super. 179, 692 A.2d 119, 1996 N.J. Super. LEXIS 512 (N.J. Super. Ct. Ch. Div. 1996).

19. Shareholder's claim against corporation that alleged a corporate "deadlock" pursuant to N.J. Stat. Ann. ß 14A:12- 7(1)(b) was improper because it was not a case where the corporation was unable to act; the corporation did act by denying the shareholder's demands for payment of a dividend or a buy-out of the shareholder's stock. Bonavita v. Cor- bo, 300 N.J. Super. 179, 692 A.2d 119, 1996 N.J. Super. LEXIS 512 (N.J. Super. Ct. Ch. Div. 1996).

20. In successful oppression and breach of fiduciary duty lawsuit brought by minority shareholder, trial court's remedy that ordered majority shareholders to sell their shares to minority shareholder was not fair and equitable and therefore was not authorized by N.J. Stat. Ann. ß 14A:12-7(8); given breakdown in the parties' relationship, appropriate remedy was for majority shareholders to buy out minority shareholder. Musto v. Vidas, 281 N.J. Super. 548, 658 A.2d 1305, 1995 N.J. Super. LEXIS 181 (N.J. Super. Ct. App. Div. 1995).

21. Plaintiffs were entitled to relief fashioned by the court under the Oppressed Minority Shareholder Statute, N.J. Stat. Ann. ß 14A:12-7 because when the statute failed to afford the injured party with adequate relief, the court had broad authority to fashion a remedy to ameliorate the wrong. Walensky v. Jonathan Royce Int'l, 264 N.J. Super. 276, 624 A.2d 613, 1993 N.J. Super. LEXIS 179 (N.J. Super. Ct. App. Div. 1993).

22. Minority shareholder who brought an action against closely held corporation, directors, and officers and who showed fraud or illegality established a per se cause of action under N.J. Stat. Ann. ß 14A:12-7(1)(c) and was not also required to establish oppression nor precluded from relief because the fraud or illegality had ceased prior to the render- ing of the opinion. Brenner v. Berkowitz, 261 N.J. Super. 63, 617 A.2d 1225, 1992 N.J. Super. LEXIS 428 (N.J. Super. Ct. 1992), reversed by 134 N.J. 488, 634 A.2d 1019, 1993 N.J. LEXIS 1310 (1993).

23. Where minority shareholder established more than one of the grounds for relief specified in N.J. Stat. Ann. ß 14A:12-7(1)(c), in suit against closely held corporation, directors, and officers and wanted to sell minority shareholder's shares or to buy majority's shares, and closely held corporation, directors, and officers did not wish to have the corporation dissolved, the judge could have directed closely held corporation, directors, and officers to file a motion pursuant to N.J.S.A. 14A:12-7(8) seeking to purchase minority shareholder's shares to avoid possible dissolution of the corporation. Brenner v. Berkowitz, 261 N.J. Super. 63, 617 A.2d 1225, 1992 N.J. Super. LEXIS 428 (N.J. Super. Ct. 1992), reversed by 134 N.J. 488, 634 A.2d 1019, 1993 N.J. LEXIS 1310 (1993).

81 24. Minority shareholder in a corporation had no claim against the corporation and other shareholders as an oppressed shareholder under N.J. Stat. Ann. ß 14A:12-7(1)(c) where the termination of his employment by the corporation resulted from his unsatisfactory performance. Exadaktilos v. Cinnaminson Realty Co., 167 N.J. Super. 141, 400 A.2d 554, 1979 N.J. Super. LEXIS 668 (N.J. Super. Ct. 1979), affirmed by 173 N.J. Super. 559, 414 A.2d 994, 1980 N.J. Super. LEXIS 544 (N.J. Super. Ct. 1980).

25. In an action by shareholders of a closely held corporation under the deadlocked corporations statute, if each stockholder held one-fourth of all of the stock legally issued by the corporation, and each stockholder was a director, then the deadlock statute did apply; if one stockholder held additional shares the statute did not apply. Costabile v. Essex Linoleum & Carpet Co., 98 N.J. Super. 224, 236 A.2d 625, 1967 N.J. Super. LEXIS 388 (N.J. Super. Ct. 1967).

26. The deadlocked corporations statute did not apply to a corporation that had a three person board of directors. Costa- bile v. Essex Linoleum & Carpet Co., 98 N.J. Super. 224, 236 A.2d 625, 1967 N.J. Super. LEXIS 388 (N.J. Super. Ct. 1967).

27. In an action brought by an oppressed shareholder against a corporation's other shareholders, the trial court's determination of the value of the shareholder's interest in a court-ordered buy-out pursuant to N.J. Stat. Ann. ß 14A:12-7 was proper where there was no abuse of discretion in the trial court's maintaining an evaluation date, and in refusing to make equitable adjustments for the corporation's post-valuation date profits. Musto v. Vidas, 333 N.J. Super. 52, 754 A.2d 586, 2000 N.J. Super. LEXIS 291 (N.J. Super. Ct. App. Div. 2000), appeal denied by 165 N.J. 607, 762 A.2d 221, 2000 N.J. LEXIS 1436 (2000), appeal denied by 165 N.J. 607, 762 A.2d 221, 2000 N.J. LEXIS 1437 (2000).

28. In a court-ordered buy-out arising from an oppressed shareholder's action against a corporation's other shareholders where the shareholder contended that the trial court erred by not utilizing an equitable interest rate to allot him a 25 percent rate of return as an expected rate of return, the judgment of the trial court was sustained because there was no evidence that the term "interest" as used in N.J. Stat. Ann. ß 14A:12-7 was intended to have a special meaning as asserted by the shareholder's expert. Consequently, there was no abuse of discretion in the trial court's rejection of the shareholder's proposed equitable interest rate. Musto v. Vidas, 333 N.J. Super. 52, 754 A.2d 586, 2000 N.J. Super. LEXIS 291 (N.J. Super. Ct. App. Div. 2000), appeal denied by 165 N.J. 607, 762 A.2d 221, 2000 N.J. LEXIS 1436 (2000), appeal denied by 165 N.J. 607, 762 A.2d 221, 2000 N.J. LEXIS 1437 (2000).

29. In determining the "fair value" of shares of a shareholder forced to sell his stock in a judicially ordered buy-out under the Oppressed Shareholder Statute, N.J. Stat. Ann. ß 14A:12-7 et seq., a nonmarketability discount from intrinsic value was equitable for stock in a closely-held corporation. Balsamides v. Protameen Chems., Inc., 160 N.J. 352, 734 A.2d 721, 1999 N.J. LEXIS 836 (1999).

30. While a marketability discount was generally not applied to corporate shares in a corporate restructure, where dissenting shareholders had exploited the transaction giving rise to an appraisal so as to divert value to themselves, such discount was properly applicable to their shares' fair value. Lawson Mardon Wheaton, Inc. v. Smith, 315 N.J. Super. 32, 716 A.2d 550, 1998 N.J. Super. LEXIS 375 (N.J. Super. Ct. App. Div. 1998).

31. Although the trial judge had authority to order the corporations to repay the minority shareholder capital as debt under N.J. Stat. Ann. ß 14A:12-7(8) in order to protect the minority shareholder from the majority shareholders under N.J. Stat. Ann. ß 4A:12-7(1)(c), the payout schedule was defective where it would have jeopardized the rights of other creditors, been at the expense of the majority shareholders, or threatened the corporations' ability to survive. Knecht v. Man- dek Corp., 281 N.J. Super. 439, 658 A.2d 317, 1995 N.J. Super. LEXIS 188 (N.J. Super. Ct. App. Div. 1995).

32. Pursuant to N.J. Stat. Ann. ß 14A:12-7, a finding of either fraud or of illegality, without a finding of oppression, may be sufficient to permit a court to conclude that the statute has been violated, but the statute does not require that the

82 misconduct be continuing for a violation to be established. Brenner v. Berkowitz, 134 N.J. 488, 634 A.2d 1019, 1993 N.J. LEXIS 1310 (1993).

33. Trial court erred in fixing the buyout price of a partners' shares pursuant to to N.J. Stat. Ann. ß 14A:12-7(8) by adopting the formula contained in the parties' buy-sell agreement to value the stock; the trial court should have properly determined the fair value by adopting the appraisal report or by ascertaining fair value in another way. Hughes v. Sego Int'l, Ltd., 192 N.J. Super. 60, 469 A.2d 74, 1983 N.J. Super. LEXIS 968 (N.J. Super. Ct. 1983).

34. Where the trial court ordered dissolution of partnership, the trial court properly ordered dissolution, properly determined that partners' behavior was in disregard of their fiduciary obligations to one another, but the trial court improperly ordered that a partner receive benefits to which he was not entitled as certain property was a partnership asset notwithstanding that title lay in a partner's name under the deadlock statute, former N.J. Rev. Stat. 14:13-15 (now N.J. Stat. Ann. ß 14A:12-7). Stark v. Reingold, 18 N.J. 251, 113 A.2d 679, 1955 N.J. LEXIS 253 (1955).

35. Where a trial court ordered one shareholder to sell his stock to the other 50 percent owner of a close corporation, an appellate court had reservations about the use of the excess earnings approach of Rev. Rul. 68-609, 1968-2 C.B. 327 to value the stock and noted that most courts have used Rev. Rul. 59-60, 1959-1 C.B. 237 as a guide; further, in a valuation under N.J. Stat. Ann. ß 14A:12-7(8)(a), the court had to deal with the realities of good will, actual profit, and the relationship of the relevant factors on the basis of informed judgment and common sense. Balsamides v. Perle, 313 N.J. Su- per. 7, 712 A.2d 673, 1998 N.J. Super. LEXIS 281 (N.J. Super. Ct. App. Div. 1998).

36. In an action under N.J. Stat. Ann. ß 14A:12-7(1)(c), it was neither "fair" nor "equitable" for a surviving shareholder to obtain a selling shareholder's interest at a discount; N.J. Stat. Ann. ß 14A:12-7(8)(a) did not warrant a departure from the sensible approach that would decline to apply a discount for lack of marketability when one owner of a close corporation transferred his interests to another owner, who in turn became the corporation's sole shareholder. Balsamides v. Perle, 313 N.J. Super. 7, 712 A.2d 673, 1998 N.J. Super. LEXIS 281 (N.J. Super. Ct. App. Div. 1998).

39. Where a trial court made no determination on plaintiff's demand for attorney fees under N.J. Stat. Ann. ß 14A:12- 7(10) in an action under ß 14A:12-7(1)(c), the matter was remanded for consideration of the issue; further, because plaintiff failed to comply with N.J. Ct. R. 4:42-9(b) by not providing a detailed affidavit or certification of services, plaintiff was ordered to remedy the defect on remand. Balsamides v. Perle, 313 N.J. Super. 7, 712 A.2d 673, 1998 N.J. Super. LEXIS 281 (N.J. Super. Ct. App. Div. 1998).

40. N.J. Stat. Ann. ß 14A:12-7(10) requires a finding of arbitrariness, vexatiousness, or lack of good faith; this does not mean that every corporation that wins an oppressive shareholder suit may be awarded fees, bad faith must also be proved without evidence that plaintiff acted in bad faith by acting to prevent himself from being frozen out of his own company and did not prevail , this action was not necessarily arbitrary, vexatious, or without good faith. Belfer v. Mer- ling, 322 N.J. Super. 124, 730 A.2d 434, 1999 N.J. Super. LEXIS 209 (N.J. Super. Ct. App. Div. 1999).

LAW REVIEWS

1. 24 Seton Hall L. Rev. 234, CORPORATIONS EVENLY DIVIDED: JUDICIAL REMEDIES FOR EQUAL SHARE- HOLDERS, 1993.

2. 26 Seton Hall L. Rev. 637, ARTICLES: 25 YEARS OF THE NEW JERSEY ANTITRUST ACT, 1996.

3. 26 Seton Hall L. Rev. 1359, SURVEY OF RECENT DEVELOPMENTS IN NEW JERSEY LAW, 1996.

N.J. Stat. ß 14A:12-8 (2006)

ß 14A:12-8. Effective time of dissolution

A corporation is dissolved (a) when the period of duration stated in the corporation's certificate of incorporation expires and the corporation files a certificate of dissolution in the office of the Secretary of State pursuant to section 14A:12-5.1; or (b) upon the proclamation of the Secretary of State issued pursuant to section 54:11-2 of the Revised Statutes; or (c) when a certificate of dissolution is filed in the office of the Secretary of State pursuant to section 14A:12-2, 14A:12-3, 14A:12-4 or 14A:12-5, except when a later time not to exceed 90 days after the date of filing is specified in the certificate of dissolution; or (d) when a judgment of forfeiture of corporate franchises or of dissolution is entered by a court of competent jurisdiction.

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