The present application before me involves but one facet of a stockholders' suit against Niles-Bement-Pond Company, a corporation of this State hereinafter called the defendant. Originally the suit was filed by a plaintiff, who claimed to be a large stockholder of the defendant, objecting to a contract entered into by the defendant with Belco General Corporation, whereby the defendant agreed to issue 631,715 shares of its authorized but unissued stock in exchange for a large block of stock of Bell Aircraft Corp. as well as the payment of a cash differential. The contract was never submitted to the stockholders for approval. Plaintiff not only charged that the directors of the defendant had no power to authorize such a contract but also alleged a corrupt motive and an attempt by the directors to "water" the outstanding stock and thereby dilute and weaken the plaintiff's percentage of control and ownership and at the same time issue a controlling block of stock to a faction that would vote to keep the present directors in office. After the filing of the complaint a number of other stockholders were permitted to intervene as co-plaintiffs. On proper application, the defendant was enjoined from carrying out the terms of said contract pending a final hearing on the charges made and issues raised by plaintiffs. The contract called for performance on March 1, 1955. When the defendant failed to carry out its obligations under said contract, the other party to the contract, by letter dated March 1, 1955 terminated the agreement, citing the defendant's failure to perform as the reason. This part of the case therefore has recently become moot.
On February 18, 1955 plaintiffs made an application for additional relief in this same cause and allegedly arising out of the same situation. It is this latter part of the case that is before me now. In it the plaintiffs show that at the same meeting on January 11, 1955 at which the aforesaid contract
was authorized, the board of directors of the defendant also amended the corporate by-laws by changing the date of the annual meeting of stockholders from the first Wednesday after the first Monday in April in each year to the Wednesday after the second Monday in May in each year.
Plaintiffs charge that the directors have no power to postpone the date of the annual meeting of stockholders, particularly where it results in an extension of the directors' own terms of office. Numerous items of relief are sought, the substance of which is to have the new meeting date set aside and the original date reestablished.
The defendant is organized under the Corporation Act of this State, R.S. 14:1-1 et seq. Several of the provisions of said act are pertinent to this inquiry and are as follows:
R.S. 14:7-1. "The business of every corporation shall be managed by its board of directors, not less than three in number. Directors shall be chosen annually by the stockholders, at the time and place provided in the by-laws, and shall hold office for one year and until others are chosen and qualified in their stead."
R.S. 14:7-3 permits a corporation to establish a board with classes of directors having staggered terms of office up to five years, provided that the term of at least one class expires in each year. The defendant has not availed itself of R.S. 14:7-3, and all of its directors are elected annually for a term of one year pursuant to R.S. 14:7-1.
The act, insofar as it relates to the power to make or alter by-laws, says this:
R.S. 14:3-2. "The power to make and alter by-laws shall be in the stockholders, but any corporation may, in the certificate of incorporation, confer that power upon the directors. By-laws made by the directors under power so conferred may be altered or repealed by the stockholders."
The defendant has availed itself of this provision and its charter in paragraph Seventh provides inter alia that "The Board of Directors shall have the power, without the assent or vote of the stockholders, to make, alter, amend and rescind
the By-laws of this Corporation." The by-laws themselves confirm this power in the directors by providing in Article XII: "These By-Laws may be amended, altered, or repealed by the Board of Directors without the consent or vote of the stockholders."
Briefly stated, therefore, the question is, may the directors amend the by-laws so as to postpone the date of the annual meeting of stockholders? Plaintiffs say that the directors do not have the power to postpone such annual meeting date whether by amending the by-laws or otherwise, because by doing so they disregard the mandate for annual elections and also necessarily extend their term of office ...