## Facts

- Clifton Savings Bank converted from a mutual savings and loan to a stock-form institution and created a holding company, Clifton Savings Bancorp, Inc.
- The company adopted a management stock incentive plan authorizing grants of stock options and restricted stock to officers and directors, subject to stated maximum limits.
- Proxy materials disclosed the plan’s existence, principal terms, eligible participants, and the maximum number of options and restricted shares that could be awarded to any director or officer, and stated that the board would determine specific awards later.
- Shareholders approved the plan.
- After approval, the board granted each non-employee director the maximum options and restricted shares permitted under the plan.
- Shareholder Lawrence B. Seidman and his entity sued, alleging (1) the proxy disclosures were materially misleading because they did not state directors would award themselves the maximum, and (2) the awards constituted corporate waste.
- The trial court dismissed under the business judgment rule; the Appellate Division affirmed.

## Issues

1. Whether shareholder approval of a stock incentive plan limits judicial review under the business judgment rule to whether the plan or grants constitute corporate waste.
2. Whether the proxy disclosures were materially deficient because they did not state directors would receive the maximum awards, thereby invalidating shareholder approval.
3. Whether the directors’ maximum awards of options and restricted stock constituted corporate waste.

## Decision

- The Supreme Court of New Jersey affirmed the dismissal of the complaint.
- It reaffirmed that, following valid shareholder approval or ratification, judicial review is limited and intervention is warranted only for corporate waste.
- It held the disclosures were adequate as a matter of law because shareholders were informed of the plan’s structure, eligibility, and maximum potential awards.
- It concluded the awards did not meet the strict standard for corporate waste and were therefore protected by the business judgment rule.

## Legal Principles

- After fully informed shareholder approval or ratification of corporate action, courts generally will not second-guess the merits of the decision; review is confined to whether the terms are so one-sided as to amount to corporate waste.
- A disclosure is not rendered legally inadequate merely because it does not reveal directors’ internal intentions about future discretionary allocations, where the plan’s material terms and maximum award limits are disclosed.
- Corporate waste is a narrow doctrine; it requires an exchange so disproportionate that no person of ordinary, sound business judgment could conclude the corporation received adequate value.

## Conclusion

Because shareholders were adequately informed of the plan’s material terms and maximum award limits, and because the challenged grants did not constitute corporate waste, the court applied the business judgment rule and declined to invalidate the shareholder-approved incentive plan or the directors’ awards.


Seidman v. Clifton Sav. Bank, S.L.A., 205 N.J. 150, 14 A.3d 36 (2011)