## Facts

- Mel Kramer Sales, Inc. (MKS) was a closely held Wisconsin corporation selling automotive parts and accessories.
- Jack Neimark was vice-president, a director, and a minority shareholder (580 shares, 29%).
- Mel Kramer held a controlling interest (1,020 shares, 51%); he died on December 5, 1976.
- On June 22, 1976, MKS and shareholders entered a stock redemption agreement requiring MKS, upon a shareholder’s death, to purchase the decedent’s shares at $400 per share, subject to a contractual credit.
- For Mel Kramer’s shares, the agreement required redemption within 30 days after appointment of the estate’s personal representative, for a stated price (net of a $50,000 credit), payable $100,000 at closing and the balance in five annual installments.
- Delores Kramer was appointed personal representative on May 9, 1977, and was also MKS’s president and a director.
- MKS did not redeem the estate’s shares; the board voted against redemption, citing concern about legal limits on repurchasing shares.
- Neimark brought a shareholder derivative action seeking specific performance compelling MKS to redeem the shares under the agreement.

## Issues

1. Whether specific performance may compel a corporation to redeem shares under a stock redemption agreement when corporate statutes restrict redemptions that impair capital or exceed permitted sources of payment.
2. Whether the trial court made sufficient findings that MKS had adequate earned surplus at the time redemption was required to lawfully fund the full redemption obligation.

## Decision

- The Wisconsin Court of Appeals vacated the judgment ordering specific performance and remanded.
- The court held that enforcement of a redemption agreement is subject to statutory limits governing a corporation’s purchase of its own shares.
- The trial court’s findings—focused on solvency and the ability to pay installments as they came due—did not resolve whether MKS had sufficient earned surplus when the redemption obligation was triggered to support the full redemption amount.
- On remand, the trial court was directed to determine the relevant earned surplus at the time performance was due and reconsider specific performance consistent with the statutory requirements.

## Legal Principles

- Stock redemption agreements in closely held corporations are generally valid, but performance is conditioned on compliance with mandatory corporate statutes governing distributions and share repurchases.
- A corporation may redeem or purchase its own shares only from statutorily permitted funds, including earned surplus, and may not do so in a manner that violates creditor-protection limits.
- The legality of a compelled redemption turns on the corporation’s earned surplus at the time the redemption obligation arises, not merely on general solvency or projected ability to pay future installments.
- Specific performance is improper where the record lacks necessary factual findings establishing statutory compliance for the requested corporate redemption.

## Conclusion

The court vacated an order compelling a corporate stock redemption because the trial court did not make the findings required to show the redemption was lawful under Wisconsin’s earned-surplus limitations at the time the obligation to redeem arose, and it remanded for determinations necessary to decide whether specific performance could be granted.


Neimark v. Mel Kramer Sales, Inc., 102 Wis. 2d 282, 306 N.W.2d 278 (Wis. Ct. App. 1981)