On appeal from the Superior Court, Chancery Division, Bergen County.
Before Judges Michels, Skillman and Kestin.
The opinion of the court was delivered by
On May 10, 1991, plaintiffs, Muellenberg and Bikon-Technik, GmbH ("BTG") filed a complaint in the Chancery Division seeking dissolution of Bikon Corporation ("Bikon" or "the corporation") pursuant to N.J.S.A. 14A:12-7(1). They also sought injunctive relief from asserted patent and trademark infringements; an accounting with respect to unpaid royalty fees and payment of such amounts due; an accounting as to the business and financial affairs of the corporation since 1986; and declarations that defendant Adda Finanziaria, S.R.L. ("Adda") was not a shareholder of the corporation and that defendant Passerini was not a director. Defendants Bikon and Burg counterclaimed for an order removing Muellenberg as an officer and director of Bikon; requiring the sale of Muellenberg's shares to the corporation or other shareholders; restraining him and his corporation, BTG, from unlawfully interfering with Bikon's contractual relationship with its suppliers and customers; and requiring plaintiffs to honor existing licensing and marketing agreements with Bikon. Defendants Passerini and Adda filed a "counterclaim and crossclaim" against plaintiffs and defendant Bikon seeking a declaration that consideration for 100 shares of Bikon had been delivered to the corporation and an order removing Muellenberg as an officer and director of the corporation.
Muellenberg and BTG sought additional relief in an amended complaint: an order requiring Bikon to make immediate cash payment to plaintiffs for all principal and interest due on certain demand notes; and damages for trademark infringement and unfair competition. In an amended counterclaim dated January 23, 1992, Burg and Bikon sought, additionally, a restraint on plaintiffs from selling any of their products encompassed under the licensing and marketing agreements to customers of Bikon in the United States or to anyone selling those products in the United States; and a disclosure of and accounting for any such sales or marketing. In another "counterclaim" amendment dated May 7, 1993, Burg sought an order declaring that Adda had not paid for its Bikon stock subscription and that Passerini, Adda's representative, was no longer an officer or director of Bikon.
The Bikon Corporation was created in September, 1982 by Muellenberg, Burg, and Passerini on behalf of his holding partnership, Adda.*fn* Muellenberg is a mechanical engineer and inventor, who holds eighty patents for his inventions. He is the only shareholder of BTG, which was established to promote his inventions, and which owns the trademarks under which the inventions are sold: Bikon, Dobikon, and Bikon-Technik. Other firms are engaged to produce the inventions, including Tecnomeccanica S.N.S. di Sacchi & C. ("TM"), with which Passerini was associated. In 1979, BTG and TM, agreed that TM would be the exclusive manufacturer of products for BTG in Italy, that BTG would make specified minimum purchases annually, and that BTG would have exclusive rights to sell the products manufactured by TM in various countries including the United States.
Burg is also a mechanical engineer with expertise in stress analysis. He was employed in this field of work in Germany until 1976, when he emigrated to the United States and became employed in Westwood by Ringfeder, a competitor of BTG. Muellenberg and Burg had become acquainted while Burg still lived in Germany. From 1980 to 1982, Muellenberg and Burg negotiated concerning Burg's participation in a company to be formed in the United States to promote the sale of BTG products in this country and in Canada. Ultimately, agreement was reached, leading to Burg's resignation of his position with Ringfeder and the creation of Bikon.
In a licensing agreement between Muellenberg and Bikon, the corporation was granted the right of commercial exploitation of Muellenberg's inventions in the United States in exchange for a license fee of 5% of all gross receipts. In a separate distribution agreement between BTG and Bikon, the corporation was granted the right to produce and distribute BTG's products in return for a fee of 5% of gross receipts. Burg did not participate in the preparation of the agreements.
Initially, Bikon operated from Burg's residence in River Vale, for which the corporation paid $700 per month rent, later increasing to $900. Ultimately, when the business was relocated to Orange County, New York in June 1984, $1,350 in monthly rental was paid for its share of property consisting of the Burg family residence and a separate two-story building for the corporation.
Differences began to arise between Muellenberg and Burg over issues relating to control of the day-to-day operations of the corporation; authority to make corporate policy decisions, including those relating to sources of supply other than products and companies controlled by Muellenberg; and Muellenberg's access to sales data, distribution lists and the like. Disputes also ensued over the amount of royalty fees which the corporation was obliged to pay to BTG in respect of its patent and trademark rights, how payments were calculated, and when they were to be made; the right of the corporation to market products manufactured by competing companies; issues related to identifying and using authorized suppliers; the responsibility of the corporation to market new products developed by Muellenberg; and many differences relating to the cost of products and Bikon's pricing policies.
The in-court phase of this case, after an early denial of plaintiffs' motion for preliminary injunctive relief, began on January 19, 1993 with the entry of an order to show cause, at the instance of Burg and Bikon, seeking to restrain Muellenberg, Passerini and Adda from taking any action to dissolve Bikon, and to restrain Muellenberg from interfering with Bikon's contractual relationships with its suppliers, customers or creditors or communicating with them concerning a dissolution of Bikon or a cessation of its business. Temporary restraints were ordered pending the return date on January 22. The injunctions sought were imposed pending trial in an order entered on February 5, 1993.
In the interim, on January 20, a Bikon board of directors meeting was held, attended by Muellenberg, Passerini, and Gregor F. Gregorich, the corporation's secretary. Burg was the only officer and director not present, although he had been notified of the meeting. Muellenberg had called the meeting to dissolve the corporation. The directors were advised of the temporary restraints imposed upon them the preceding day and, instead of proceeding with the announced business, adopted resolutions (1) declaring that the corporation had substantial retained earnings not necessary for the operation of the business, and, therefore, a shareholder dividend in the amount of $600 per share was to be paid (each of the three shareholders -- Muellenberg, Burg, and Passerini -- held 100 shares of the corporation's stock); (2) providing that the corporation was to retain an outside accountant to determine the amount of accrued royalties for the period ending December 31, 1992; (3) "to better control the expenses of the [corporation] in a time of economic uncertainty," providing that signatory authority was required from both Muellenberg and Burg or just Muellenberg for payments made by the corporation; requiring all payments made by Burg to be supported by proper documentation as deemed reasonable by Muellenberg; and providing that no bank account of the corporation could thereafter be opened or closed without prior approval by the board; (4) requiring that the corporation would thereafter purchase all clamping assemblies solely from Bikon Sistemi, S.r.l., BTG, or such other supplier as would be approved by the board; (5) providing that, in accordance with the by-laws, all expenses incurred by the directors to attend the January 20, 1993 meeting were to be reimbursed by the corporation; (6) declaring, based upon documentation furnished by Passerini, that Adda was a shareholder of the corporation; (7) "discontinuing" the pending lawsuit and dismissing all of the corporation's counterclaims with prejudice; (8) providing that no purchase orders by the corporation to suppliers in an amount greater than $1,000 were to be issued unless signed by two directors; (9) requiring Burg to furnish the board with copies of all contracts currently in force between the corporation and suppliers; (10) providing that Adda's and Passerini's legal costs in the lawsuit were to be reimbursed by the corporation; (11) providing that Muellenberg was to be reimbursed by the corporation for legal costs incurred in the litigation; and (12) approving certain "corrective amendments" to the by-laws.
A second order to show cause was entered on March 9 on the application of Burg and Bikon. The relief sought was an injunction pending trial against Muellenberg, Passerini and Adda from carrying out resolutions 1, 2, 3, 4, 8 and 9 and from "interfering with the usual and ordinary conduct and course of [Bikon's] business." The order to show cause also effectively rescinded instructions given to the Bank of New York to dishonor corporate checks and drafts signed by Burg and to honor only those signed by Muellenberg. A handwritten ...