When a corporation sells or exchanges all, or substantially all of its property and assets, including its good will, the stockholders of the selling corporation must approve by a two-thirds vote, and objecting stockholders of the selling corporation are given appraisal rights, as provided in N.J. Stat. Ann. § 14:12-6 in the case of a merger.
Plaintiff stockholders challenged the proposed transfer of all shares and assets of first defendant corporation to second defendant corporation, which would have included an assumption of all liabilities, a pooling of interests, total absorption of the first corporation and dissolution of it, joinder of officers and directors from both corporations, retention of some personnel, and a surrender by the first corporation's sole stockholder of his stock in exchange for newly issued shares in the second corporation. The parties filed cross-motions for summary judgment.
Did the proposal to transfer all shares and assets of first defendant corporation to second defendant corporation constitute a merger?
The Court held that the corporate combination of both defendant corporations was a practical or de facto merger within the protective purview of N.J. Stat. Ann. § 14:12-7, and therefore plaintiffs were entitled to have been notified and advised of their statutory rights of dissent and appraisal. The Court further ruled that the failure of defendant's corporate officers to have taken those steps and to have obtained stockholder approval of the agreement rendered the proposed corporate action invalid.