Appeal from the Circuit Court of Cook County. Honorable Edwin M. Berman, Judge Presiding.
Petition for Leave to Appeal Denied February 1, 1995. As Corrected March 23, 1995.
The opinion of the court was delivered by: Mcnulty
JUSTICE McNULTY delivered the opinion of the court:
Plaintiff SPSS filed this statutory appraisal proceeding, pursuant to section 11.70 of the Illinois Business Corporation Act of 1983 (805 ILCS 5/11.70 (West 1992)) (Act), for a judicial determination of the fair value of certain shares of SPSS Class B common stock owned by defendants John Grillos, Ellen Carnahan-Walsh and Ronald Wanke. (SPSS and Wanke reached a settlement before trial and Wanke is therefore not part of this appeal.) Plaintiff appeals from the trial court ruling that the fair value of Class B stock owned by defendants was $20.70 per share and awarding defendants their attorney fees and costs. We affirm.
In September 1990, SPSS issued to its shareholders a confidential Private Placement Memorandum (PPM) describing its proposed merger/recapitalization transaction, and informing shareholders Grillos, Walsh and Wanke that it was cancelling their SPSS stock and offering them $4.44 per share for their stock. The PPM stated that:
"For purposes of the Recapitalization, the current equity of the Company has been valued at $18.7 million * * *. There are currently 1,092,032 shares of capital stock outstanding. See STOCK OWNERSHIP. However, these shares do not have equal participation rights. In April 1986, the Company's capital stock was divided into two classes -- Class A Stock and Class B Common Stock. The estimated value of the Company at the time -- $14 million -- was allocated solely to the Class A Stock and the two classes share pro rata in any increase in the value of the Company over $14 million. Therefore, the Class B Common Stock only shares in $4.7 million of the total equity valuation of the Company."
The per share value of the Class A and B stock was calculated as $18.44 per Class A share and $4.44 per Class B share. The PPM advised the shareholders of their right to Dissent to the transaction. The transaction took place on October 10, 1990. Grillos, Walsh and Wanke Dissented to the transaction, rejecting SPSS' offer of $4.44 per share for their Class B stock. SPSS offered Grillos, Walsh and Wanke $2.08 per share, SPSS' estimated value of the shares. The Dissenting shareholders responded with their own estimated fair value. Walsh and Wanke claimed the fair value of the Class B stock was $27.58 per share, and Grillos claimed that the stock was worth $36.13 per share.
In February 1991, SPSS filed its petition for appraisal of stock against Grillos, Walsh and Wanke, requesting a judicial determination of the value of the stock. Grillos, Walsh and Wanke each filed counterclaims, claiming that SPSS misrepresented certain facts in the PPM. SPSS then filed a "counterclaim" against Grillos' for breach of fiduciary duty, based on Grillos' actions while president of SPSS. SPSS also filed a "counterclaim" against Wanke, asserting malpractice, conflict of interest, and breach of fiduciary duty. Wanke was voluntarily dismissed from this action prior to trial.
On December 5, 1991, SPSS filed motions to disqualify David Belofsky and his law firm and Mitchell Macknin and his law firm from representing Walsh and Grillos, respectively, based on their communications with Wanke concerning matters relating to Wanke's prior representation of SPSS and on Wanke's breach of duty to SPSS. The trial court denied SPSS' motions to disqualify.
On December 10, 1991, the trial court entered an order severing "all counterclaims and counterclaims to counterclaims." The trial on the appraisal complaint began on June 10, 1992. Norman Nie, SPSS founder, chairman and chief executive officer, testified as to the circumstances surrounding the issuance of the Class B stock in 1986. Nie testified that the Class B stock was issued to allow SPSS management employees to share in the future growth of the company. Nie testified as to the differences between the Class A and Class B stock, in that the Class B stock had limited voting rights, it had a $14 million exclusion and it had limitations on transferability. Nie believed that SPSS' $4.44 valuation of the Class B stock was fair. Nie testified that in 1987, shareholders James Rabjohn and Marcia McDermott redeemed their Class B shares for amounts between $14.43 and $16 per share. He structured the redemption agreements to recite a purchase of the stock for $1, and a consulting agreement for the remaining $13 to $15 per share. Nie testified that no consulting services were performed and the actual value paid for the stock was the total amount, not $1 per share.
Nie testified that in October of 1986, SPSS executed a letter of intent to Pansophic Systems, Inc. which stated that:
"Pansophic understands that at the present time SPSS has authorized two different classes of stock: Class A - Common Stock and Class B - Common Stock. SPSS shall adopt a plan of liquidation to distribute the Pansophic cash among its stock brokers with each class of SPSS Common Stock to be treated in parity with others."
Immediately after the Pansophic negotiations, SPSS repealed the Class B restrictions (except the voting restriction), in pursuit of a Subchapter S election, an election which was abandoned in early 1987. In March 1987, SPSS' accountants wrote SPSS, reminding it of the adverse tax consequences that would result from the repeal of the restrictions. The reinstatement of the restrictions required the approval of the Class B ...