On appeal from the Superior Court, Chancery Division, Hudson County.
Morton I. Greenberg and Trautwein. The opinion of the court was delivered by Morton I. Greenberg, J.A.D.
This matter comes on before the court on appeal from the Superior Court, Chancery Division, Hudson County, in an action in which the court fixed the purchase price for plaintiff's shares in Sego International, Ltd. and Sego International, Inc. (together referred to as Sego) pursuant to N.J.S.A. 14A:12-7(8). An understanding of the issues requires that we set forth the facts as developed at the trial and the procedural history of the case at length.
In 1974 plaintiff, George V. Hughes, defendants, Raymond L. Pierce and William P. Haag III, and Ronald Molinaro formed Sego. Each made a $5,000 capital contribution for a 25% stock interest and they became the only shareholders, officers and directors of Sego. In late 1974 Sego began offering management consulting services to industry. The business had three aspects: (1) sales, meaning soliciting business; (2) analyses, meaning the onsite study and evaluation of a business operation followed by the submission of a report, and (3) initiation of projects to implement recommendations of the analyses.
In 1975 Molinaro terminated his relationship with Sego without any request for payment for his percentage of ownership. At that time the three remaining stockholders therefore owned one-third each of Sego. In May 1978 Gerald D. Kniffen purchased a 25% interest in Sego for $77,312.50.
On June 21, 1978 the four stockholders entered into a buy-sell agreement for the expressed purpose "to provide for the continuous and financially sound operation of the Corporations notwithstanding the death(s) of any of the Partners" and to provide "a method and mechanism which will assure the continuous and financially sound operation of the Corporations in the event of death(s) of any of the Partners."*fn1
The agreement included the following provisions:
(1) Sego shall insure the life of each partner with Sego as beneficiary.
(2) Upon the death of a partner, Sego shall purchase the deceased partner's stock in the corporations.
(3) The total value of all the shares in Sego, if any were to be purchased under the agreement, was to "be the average yearly gross revenues of the Corporations over the five (5) full fiscal years immediately preceding the death of the Partner multiplied by two and one-half (2 1/2)." The value paid by the purchaser for the shares of the deceased partner was to be determined on a percentage basis so that for a 25% share he would receive 25% of the total value.
(4) Sego and then the partners shall have the right of first refusal at the same price that a deceased partner's shares would be valued if a partner wished to sell his stock during his lifetime.
The record indicates that each stockholder performed a particular function for Sego. Plaintiff supervised sales; Pierce was assigned to overall administrative leadership and operations; Haag supervised analysis functions and Kniffen handled analyses and projects. Some disputes developed among the stockholders. Apparently the other stockholders thought that plaintiff had not produced adequate sales. Thus on December 20, 1978 at a regularly ...