## Facts

- United Board & Carton Corporation (United), a New Jersey corporation, entered an “exchange of stock” agreement with Interstate Container Corporation (Interstate), a New York corporation wholly owned by Saul L. Epstein.
- Under the agreement, Epstein would transfer all 1,250 shares of Interstate to United in exchange for 160,000 newly issued United shares, giving Epstein roughly a 40% ownership interest in United.
- United would obtain control of Interstate’s assets and liabilities, record them on United’s books, and Interstate would be dissolved after the exchange.
- The agreement contemplated significant changes to United’s governance: Epstein and his nominees would obtain substantial board representation, including the addition of four directors, resulting in Epstein’s effective board control.
- United’s proxy materials characterized the transaction as a stock purchase/exchange (not a statutory merger), asserted that only a simple majority vote was required, and stated dissenting shareholders had no appraisal rights.
- Dissenting minority shareholders sued in the New Jersey Superior Court, Chancery Division, contending the transaction was a merger in substance and that they were entitled to merger-statute protections, including appraisal rights under N.J.S.A. 14:12-7.
- The parties presented cross-motions for summary judgment on the ground that there were no genuine disputes of material fact, framing the case around whether the transaction was a de facto merger.

## Issues

1. Whether a corporate combination structured as an “exchange of stock,” coupled with transfer of assets and liabilities and dissolution of the acquired corporation, should be treated as a practical or de facto merger under N.J.S.A. 14:12-7.
2. Whether, if the transaction was a de facto merger, dissenting shareholders were entitled to statutory notice, dissent, and appraisal rights despite the transaction’s non-merger form.

## Decision

- The court held the transaction was a “practical or de facto merger” within the protective scope of N.J.S.A. 14:12-7.
- The court ruled that dissenting shareholders were entitled to be notified and advised of their statutory rights of dissent and appraisal.
- The court rejected the view that labeling the transaction a stock exchange or purchase controlled where the transaction’s substance and effect matched a merger.

## Legal Principles

- Courts examine the substance and effect of a corporate combination, not merely its formal label, in determining whether merger-statute protections apply.
- A transaction may be treated as a de facto merger when it effectuates a merger-like result, including: acquisition of all stock, integration of assets and liabilities into the acquiring corporation, dissolution of the acquired corporation, and governance/control changes that fundamentally alter shareholder interests.
- Merger statutes protecting minority shareholders—through notice, voting safeguards, and appraisal rights—cannot be avoided by structuring a merger-like combination as a stock exchange followed by dissolution.

## Conclusion

The Chancery Division treated the stock-for-stock acquisition and planned dissolution as a de facto merger and required that dissenting shareholders receive the statutory protections associated with mergers, including notice and appraisal rights under New Jersey law.


Applestein v. United Bd. & Carton Corp., 60 N.J. Super. 333, 159 A.2d 146 (Ch. Div. 1960)