This action was brought by plaintiffs, both corporations of New York, which are the registered owners of 2,257 shares of preferred stock of defendant Metal & Thermit Corporation (M & T) a New Jersey corporation, which stock represents 34.9% of the 6,462 shares of preferred stock authorized, issued and outstanding of the defendant corporation. The action attacked the proposed merger and consolidation of The Udylite Corporation (Udylite), a Delaware corporation, with and into M & T.
The complaint contained two counts, each of which sought the same relief, namely, the issuance of an injunctive order and a declaratory judgment on the legal questions presented.
At the time the complaint was filed officers and directors of M & T had undertaken preliminary measures to bring about the proposed merger and consolidation of Udylite into M & T. No ad interim restraint was sought by plaintiffs, and after defendant's answer was filed plaintiffs moved for summary judgment pursuant to R.R. 4:58 on the ground that upon the pleadings and affidavits filed they were entitled to a judgment as a matter of law since it palpably
appeared that there was no genuine issue as to any material fact. At oral argument upon said motion it developed that four days prior thereto the directors of M & T had approved and signed a formal agreement of merger and consolidation and a proxy statement, and had called a meeting of its stockholders to be held on January 11, 1962 for the purpose of taking action on the adoption of such agreement, the call of the meeting being subject to the execution of such agreement by a majority of the directors of Udylite.
The first count of the complaint alleged that under the proposed merger each share of common stock of Udylite (there being no Udylite preferred stock) would be converted into .65 of a share of common stock of M & T. It alleged that there existed no shares of common stock of M & T authorized but unissued and available for the exchange provided for in the merger, and that in order to accomplish such merger it would be necessary to amend the certificate of incorporation of M & T to provide for an increase in its authorized capital stock.
The complaint alleged that article 5 of the certificate of incorporation provided that its capital stock could not be increased without the consent of at least 67% of each class of capital stock actually issued, and that R.S. 14:11-2 required that two-thirds in interest of each class of stockholders having voting power must vote in favor of any amendment to the certificate of incorporation to increase the capital stock of such corporation. Plaintiffs in their complaint and supporting affidavits alleged that since they owned more than one-third of the preferred stock and had voting power, and their representatives having informed M & T's directors that they would vote their stock against the proposed merger and all corporate actions necessary thereto, the completion of the merger would be impossible.
In the second count of the complaint plaintiffs alleged that the proposed reconstitution of the M & T preferred stock provided for in the proposed merger was inequitable, unfair and oppressive to them as preferred stockholders, and
constituted an impairment of their contractual rights with M & T corporation.
Plaintiffs sought a judgment enjoining M & T from calling and holding a stockholders' meeting to approve the proposed merger agreement, and to enjoin M & T from doing any act designed to accomplish the merger. They also sought a declaratory judgment declaring that said merger could not be accomplished without an amendment to the certificate of incorporation of M & T requiring the consent of at least 67% of each class of the capital stock actually issued and/or approval of two-thirds in interest of each class of stockholders having voting powers.
Defendant denied the legal contentions asserted by plaintiffs, alleging that it was unnecessary to amend the certificate of incorporation to provide for an increase in its capital stock in order to consummate the merger. It alleged that R.S. 14:12-1 et seq. prescribes the procedure for merger or consolidation of corporations; that under R.S. 14:12-2 the joint agreement between such corporations shall set forth the number of shares of capital stock of the new or consolidated corporation, whether common or preferred, and, if any such stock has nominal or par value, the amount or the par value of such shares; that such agreement shall set forth the manner of converting the capital stock of each of such merging or consolidating corporations into the stock or obligations of the new or consolidated corporation. It further alleged that under R.S. 14:12-3 the merger agreement to be effected must be approved by the stockholders of each of the merging or consolidating corporations at separate meetings called for the purpose of considering the same; that each share of stock entitles the holder to one vote, and that the approval of such a merger or consolidation requires the affirmative vote of the holders of two-thirds of all the capital stock of each of said corporations.
Defendant further asserted that the proposed plan of merger, including the proposed manner of converting plaintiffs'
preferred stock into preferred stock of the proposed consolidated corporation, was not inequitable, unfair or oppressive to plaintiffs or an unauthorized impairment of their contractual rights. Defendant in its answer further alleged that plaintiffs' action was premature.
At the oral argument plaintiffs presented no evidence by means of affidavits to show that the proposed plan for the conversion of preferred stock of M & T into the preferred stock of the new consolidated corporation was inequitable. They relied solely upon the terms of the proposed merger agreement. Defendant, on the other hand, submitted various exhibits, including the affidavit of Arthur Palmer, a member of the New York investment banking firm of White, Weld & Co., in support of its contention that the proposed exchange of preferred stock was fair and equitable.
Since the directors of M & T had executed the proposed merger agreement and a proxy statement, and had called a stockholders' meeting to consider the adoption or rejection of the proposed merger between the time of filing of the complaint and answer and the date of oral argument, it was stipulated between the parties that the matter should be submitted to the court as on final hearing on the record before the court. Defendant also withdrew its defense that plaintiffs' action was premature. It was further agreed that the case should be decided by the court as on a motion for summary judgment for plaintiffs and a counter-motion for summary judgment for defendant. The court, upon submission to it of briefs of the parties and having heard oral argument, took the matter under advisement.
Four days later, on December 5, 1961, The Udylite Corporation terminated the plan for the proposed merger and consolidation with M & T by a vote of its board of directors.
Thereafter the following motions were presented to this court:
1. By plaintiffs for an order voluntarily dismissing the action without prejudice, pursuant to R.R. 4:42-1(b).
2. By defendant for an order permitting it to file a supplemental answer and counterclaim, pursuant to R.R. 4:13-4, 4:13-5 and 4:15-4.
3. By defendant for a summary judgment on its demand for relief contained ...