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02/27/89 Jack F. Suriano Et Al., v. Emi Services Corporation

February 27, 1989

JACK F. SURIANO ET AL., PLAINTIFFS

v.

EMI SERVICES CORPORATION ET AL., DEFENDANTS (EMI SERVICES CORPORATION, COUNTERPLAINTIFF-APPELLEE; DAVID L.



APPELLATE COURT OF ILLINOIS, FIRST DISTRICT, FIRST DIVISION

Shaw, Counterdefendant-Appellant)

537 N.E.2d 836, 181 Ill. App. 3d 789, 130 Ill. Dec. 507 1989.IL.247

Appeal from the Circuit Court of Cook County; the Hon. Albert Green, Judge, presiding.

APPELLATE Judges:

JUSTICE O'CONNOR delivered the opinion of the court. CAMPBELL and BUCKLEY, JJ., concur.

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE O'CONNOR

This appeal arises from an action brought by employee-stockholders of EMI Services Corporation against EMI, alleging misrepresentation of EMI's financial position in connection with the redemption of stock and sale of assets. EMI brought a counterclaim against employee-stockholder David Shaw, alleging failure to repay a loan for the purchase of stock pursuant to an employee stock purchase plan. EMI moved for summary judgment on the counterclaim, which was granted. Shaw appeals the summary judgment while the underlying case proceeds. For the reasons below, we affirm the summary judgment and order that enforcement be stayed until entry of a final judgment in the underlying case.

EMI is a consulting and engineering firm. In 1970, EMI's original four shareholders executed a stock purchase agreement (the 1970 agreement). Paragraphs 1 and 2 of the 1970 agreement restricted the shareholders' sale of EMI stock except to EMI. Paragraph 4 required redemption of stock by EMI where stockholder was an employee and his employment ended for the reasons specified. Paragraph 8 defined the value of the stock for purposes of purchase or redemption by EMI. Paragraph 13 provided that, as long as any part of the purchase price of stock purchased or redeemed by EMI remained unpaid, EMI was required to employ an independent certified public accountant to prepare annual financial statements. Paragraph 14 set forth specific conditions that constituted default under the agreement by EMI, which included the failure to comply with paragraph 13. Paragraph 15 provided for a restrictive endorsement on all stock issued pursuant to the agreement, which stated:

"This certificate is transferable only upon compliance with the provisions of an agreement dated September 1, 1970, between the shareholder named herein and EMI Corporation, a copy of which is on file in the office of the Corporation, or any revision of the agreement as mutually arrived at by the shareholder and EMI Corporation at a subsequent date."

EMI grew and subsequently provided an employee stock purchase plan through which each employee could purchase up to 5,000 shares of EMI. All EMI shareholders were employees. On April 15, 1981, David Shaw bought 5,000 shares of EMI stock through the employee purchase plan. Two documents were executed by Shaw, a loan agreement (the loan agreement) and a stock purchase agreement (the 1981 agreement).

The loan agreement stated in relevant part:

"[The] best interests of and [Shaw] would be served by offering a loan to said employee for the purchase of 5,000 shares of stock as per stock purchase agreement with EMI Corporation. The employee loan to Mr. Shaw of $39,200.00 represents 5,000 shares of stock at $7.84 per share, which will be used by [Shaw] as collateral on this loan. The hereby agreed upon simple rate of interest will be five and one half percent (5 1/2%), and the expiration date for repayment of loan is April 15, 1986."

The 1981 agreement provided the mechanism for purchase of stock by employees and EMI's redemption of the stock. Paragraph 2 provided that the price for shares bought by the employee would be the amount of "Stockholders Equity" divided by the number of shares outstanding. Shaw purchased the stock at $7.84 per share, a price that is not disputed. Paragraph 3 provided that the redemption price would be the amount of "Stockholders Equity" as defined in paragraph 2, calculated at the end of the fiscal quarter preceding the date of redemption. Paragraph 4 provided that the employee had the option to purchase the shares either by cash or by payroll deductions. Paragraph 7 restricted sale of the stock by the employee except to EMI. Paragraphs 8 and 9 required redemption of stock by EMI where employment was severed due to death, retirement, termination for cause, or permanent disability. Paragraph 10 required that where EMI purchased stock from an employee, or redeemed it, the price would be determined by paragraph 3. Paragraph 11 provided a restrictive endorsement on all stock issued pursuant to the agreement, which stated:

"This certificate is transferable only upon compliance with the provisions of an agreement dated December 31, 1976, between the Employee named herein and EMI Corporation, a copy of which is on file in the office of the Corporation, or any revision of the agreement as ...


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