Loading...
HomeMy WebLinkAbout09-2122Kathryn L. Simpson, Esquire Sup. Ct. I.D. No. 28960 METTE, EVANS & WOODSIDE 3401 North Front Street P.O. Box 5950 Harrisburg, PA 17110-0950 Phone: (717) 232-5000 klsimpson@mette.com IN RE: VISAGGIO'S, INC. IN THE COURT OF COMMON PLEAS CUMBERLAND COUNTY, PENNSYLVANIA PETITION OF KEITH A. SHAFFER, DISSENTING SHAREHOLDER NO. 09- 01.16U Civil Ier'm PETITION FOR RELIEF PURSUANT TO 15 Pa.C.S.A. 41579 Keith A. Shaffer, by his counsel, Mette, Evans & Woodside, files the following Petition for Relief seeking Court determination of the valuation of his ownership interest in Visaggio's, Inc. pursuant to 15 PA.C.S.A. § 1579 and avers in support thereof: 1. Visaggio's, Inc. is a Pennsylvania corporation with a place of business at 6990 Wertzville Road, Enola, Cumberland County, Pennsylvania 17025. 2. Keith A. Shaffer is an adult individual residing at 1265 Ash Lane, Lebanon, Lebanon County, Pennsylvania 17042-9606, and owner of 25% of the stock of Visaggio's, Inc. 3. On or about October 22, 2008, Shaffer was given notice of a Special Meeting of the Shareholders of Visaggio's, Inc. scheduled for November 4, 2008, to consider a merger of 1 11 ? 1 Visaggio's, Inc. with and into Visaggio's Acquisition, Inc. A copy of the Notice is attached as Exhibit 1. 4. A Proxy Statement was included with the letter. A copy of the Proxy Statement is attached as Exhibit 2. 5. Shaffer returned his Proxy indicating that he would vote against the merger. 6. At the November 4, 2008 Special Meeting, the merger and transactions contemplated thereby were approved and adopted by the Shareholders. A copy of the letter advising Shaffer of the action is attached as Exhibit 3. 7. A Notice dated November 10, 2008, was provided to Shaffer, pursuant to 15 Pa. C.S.A. §1575, indicating that he must demand payment for the fair value of his stock. 8. Shaffer submitted his Demand for payment on December 9, 2008. A copy of the Demand is attached as Exhibit 4. 9. On December 16, 2008, Visaggio's, Inc., responded to Shaffer that it estimated the fair value of his shares to be $35,000. A copy of the response if attached as Exhibit 5. 10. On January 8, 2009, in correspondence from the Attorney-in-Fact for Shaffer, Visaggio's, Inc. was notified that Shaffer disagreed with the corporation's "fair value" of $35,000, estimated his fair value estimate of his shares to be $500,000, and made a demand for that amount. A copy of the correspondence is attached as Exhibit 6. 11. Demand for payment remains unsettled and the 60-day period provided by the statute (15 Pa. C.S.A. §1579) for Visaggio's, Inc. to respond has passed. 12. This Court has jurisdiction pursuant to 15 Pa. C.S.A. §1579(c). 13. Shaffer seeks a determination by this court of the fair value of his shares. 2 .% I I WHEREFORE, Keith A. Shafer, dissenting shareholder of Visaggio's, Inc., respectfully requests this Honorable Court determine the fair value of his 25% interest in the stock of Visaggio's, Inc. pursuant to 15 Pa.C.S.A. § 1579. Respectfully submitted, METTE, EyANS & WOODSIDE By: N, Su? Ct. R I.D. ?o. I?60 RONALD L. FINCK, ESQUIRE Sup. Ct. I.D. No. 89985 3401 North Front Street P. O. Box 5950 Harrisburg, PA 17110-0950 (717) 232-5000 - Phone (717) 236-1816 - Fax Attorneys for Keith A. Shaffer Date: March 30, 2009 3 VERIFICATION I, Keith A. Shaffer, have read the foregoing Application for Relief and I verify that it is true and correct to the best of my knowledge, information and belief. To the extent that the foregoing document and/or its language are that of counsel, I have relied upon counsel in making this Verification. I understand that any false statements made herein are subject to the penalties of 18 Pa. C.S.A. §4904 relating to unworn falsification to authorities. DATE KEITH A. SHAFFE VISAGGIO'S, INC. 6990 Wertzville Road Enola; Pennsylvania 17025 NOTICE OF SPECIAL MEETING OF SHAREHOLDERS To be held on November 4, 2008 A Special Meeting of shareholders (the "Meeting") of Visaggio's, Inc., a Pennsylvania corporation (the "Corporation"), will be held November 4, 2008 at the offices of McNees Wallace & Nurick LLC, special counsel to the Corporation, 100 Pine Street, Harrisburg, Pennsylvania, commencing at 10:00 a.m. local time. In addition to such other business as may properly come before the Meeting or any adjournment or postponement thereof, the following issue will be addressed: Should the Corporation be merged with and into Visaggio's Acquisition, Inc. (the "Transaction"), a newly-formed Pennsylvania corporation (the "Surviving Corporation") wholly-owned by the current controlling shareholders of the Corporation (the "Majority Shareholders"), pursuant to a certain Plan and Agreement of Merger dated October 22, 2008 (the "Plan of Merger"), whereby (i) the separate existence of the Corporation will cease, (ii) the business of the Corporation will continue under ownership of the Surviving Corporation, (iii) the Majority Shareholders will receive stock of the Surviving Corporation in exchange for all of their shares in the Corporation and (iv) the sole shareholder of the Corporation other than the Majority Shareholders (the "Minority Shareholder") will receive cash for his shareholdings in the aggregate amount of Thirty-Five Thousand Dollars and 00/100 Cents ($35,000.00)? Only holders of record of Common Stock of the Corporation at the close of business on October 31, 2008 are entitled to notice of and to vote at the Meeting or any adjournment or postponement thereof. Dated: October 22, 2008 By Order of the Board of Directors, Gv ? ??. William J. L m ue PROXY STATEMENT BEING DISTRIBUTED TO ALL HOLDERS OF COMMON STOCK OF VISAGGIO'S, INC. As explained below, this document constitutes a Proxy Statement of the Corporation relating to the proposed Transaction, to be considered and acted upon at the Special Meeting of Shareholders of Visaggio's, Inc. to be held on November 4, 2008. Proxy Statement. As a Proxy Statement, this document describes the proposed Transaction and solicits proxies from holders of the Corporation's Common Stock to be voted at the Meeting. The date of this Proxy Statement is October 22, 2008. TABLE OF CONTENTS Page PROXY STATEMENT ...........................................................................................................1 1. The Meeting ..............................................................................................................1 1. Purpose of the Meeting ......................................................................................1 2. Recommendation of Board of Directors ..............................................................1 3. Proxies ................................................................................................................1 11. The Proposed Transaction .........................................................................................2 1. Background .........................................................................................................2 2. Historic Shareholder Conflict .............:.................................................................2 3. The Special Meeting of the Board of Directors ....................................................4 4. Transaction Mechanics .......................................................................................5 5. Determination of Cash Price ...............................................................................5 6. Related-Party Interests .......................................................................................6 7. Requisite Action of Shareholders ........................................................................7 DISSENTING SHAREHOLDERS' RIGHTS ..........................................................................8 IMPORTANT NOTICES ......................................................................................................11 PROXY STATEMENT 1. THE MEETING This Proxy Statement is being furnished to all holders of Common Stock of the Corporation in connection with the solicitation of proxies by the Corporation's Board of Directors for use at the Meeting to be held on November 4, 2008 at the offices of McNees Wallace & Nurick LLC, special counsel to the Corporation, 100 Pine Street, Harrisburg, Pennsylvania, commencing at 10:00 a.m. local time, and at any adjournment or postponement thereof. This Proxy Statement and the accompanying form of Proxy are being distributed to shareholders on or about October 22, 2008. 1. Purpose of the Meeting. At the Meeting, shareholders of the Corporation will consider and vote upon (a) the Plan of Merger, a copy of which is attached hereto as Appendix 1, and (b) such other matters as may properly be brought before the Meeting. 2. Recommendation of Board of Directors. The Board of Directors of the Corporation has unanimously approved the Plan of Merger and the Transaction described therein and has recommended a vote FOR approval of the Plan of Merger and the Transaction described therein by the shareholders of the Corporation. The Corporation's Board of Directors has fixed October 31, 2008 as the record date for the determination of the shareholders entitled to notice of and to vote at the Meeting. Accordingly, only holders of record of Common Stock on the record date will be entitled to notice of and to vote at the Meeting. As of the record date, there were outstanding 1,000 shares of Common Stock held by three (3) holders of record. Each record holder of shares of Common Stock on the record date is entitled to cast one vote per share on each proposal properly submitted for the vote of the shareholders, either in person or by properly executed Proxy. The presence, in person or by properly executed Proxy, of the holders of more than fifty percent (50%) of the votes entitled to be cast by all outstanding shares of Common Stock is necessary to constitute a quorum at the Meeting. The approval of the Plan of Merger will require the affirmative vote of more than fifty percent (50%) of the votes cast at the Meeting (either in person or by Proxy) by holders of the issued and outstanding shares of Common Stock. 3. Proxies. All shares of Common Stock which are entitled to vote and are represented at the Meeting by properly executed Proxies received prior to or at the Meeting, and not revoked - 1 - prior to or at the Meeting, will be voted at such Meeting in accordance with the instructions indicated on such Proxies. If no instructions are indicated, such Proxies will be FOR approval of the Plan of Merger. Other matters, which are to come before the Meeting, are listed on the agenda enclosed with this Proxy Statement. To the extent other matters are properly presented at the Meeting for consideration, the person named in the Proxy and acting thereunder will have the discretion to vote on such matters in accordance with his or her best judgment. Any Proxy given pursuant to the solicitation may be revoked by the person giving it at any time before it is voted. Proxies may be revoked by (a) filing with the Secretary of the Corporation, at or before the taking of the vote at the Meeting, a written notice of revocation bearing a later date than the Proxy, (b) a duly executed and later dated Proxy relating to the same shares and delivered to the Secretary before the taking of the vote at the Meeting, or (c) attending the Meeting and voting in person (although attendance at the Meeting will not in and of itself constitute a revocation of the Proxy). Shares for which Proxies are submitted that are marked "Abstain" will be included in determining the presence of a quorum at the Meeting but will not be voted. All expenses of this solicitation, including the cost of preparing and mailing this Proxy Statement will be borne by the Corporation. II. THE PROPOSED TRANSACTION 1. Background. As of December 31, 2007, twenty five percent (25%) of the issued and outstanding shares of Common Stock of the Corporation were owned by a single Minority Shareholder who was and has been for over twenty (20) years entirely inactive in the affairs of the Corporation, and the remaining seventy five percent (75%) of the Common Stock of the Corporation is owned by a group consisting of members of the Visaggio family, all of whom are active in the affairs of the Corporation and its Business (as hereinafter defined). As currently constituted, the Corporation is closely-held, and any investment in the Corporation is illiquid, since there is no market for the Corporation's Common Stock, and there is no requirement on the part of the Corporation or any of its shareholders to purchase Common Stock from any of the Corporation's shareholders, except in the event of a shareholder's death. 2. Historic Shareholder Conflict. The Corporation was formed in 1980 for the purpose of operating a restaurant/bar and motel. The operations of the Corporation have subsequently been expanded to include the operation of a banquet facility/catering business in addition to the restaurant/bar and motel (collectively, the "Business"). Initially, the ownership of the Common Stock was divided equally between the Minority Shareholder and the Majority Shareholders, but in early 1981 the Minority Shareholder discontinued his active involvement in the Business and agreed to sell one-half of his shareholdings to the Majority Shareholders as part of his withdrawal from active participation in the affairs of the Corporation. -2- Unfortunately, a dispute arose between the Majority Shareholders and the Minority Shareholder regarding the terms of his withdrawal from the business, which dispute was ultimately resolved by Opinion of the Superior Court of Pennsylvania on April 20, 1987 after lengthy and costly litigation and an appeal by the Minority Shareholder from a trial verdict in favor of the Majority Shareholders, said opinion concluding by "[f]inding no merit to any of the issues raised by the appellant..." The interaction between the Majority Shareholders and the Minority Shareholder remained quiescent for over twenty (20) years after the release of the Superior Court's Opinion. The Corporation continued to provide the Minority Shareholder during that period with tax information and filings relating to the Business and copies of relevant financial statements, as prepared by the Corporation's outside accounting firm (collectively, the "Historic Financial Statements"). On or about July 2, 2007, the Minority Shareholder sent a letter to the Majority Shareholders, a copy of which is attached hereto as Appendix 2 (the "Demand Letter"). While alleging in the Demand Letter a desire to "resolve this matter ...and get it behind us," the Minority Shareholder made no offer to sell his remaining shares of Common Stock in the Corporation, but rather made claims for back payment of 20+ years' worth of putative dividends that he believes should have been paid him despite the fact that such claims (i) were largely time-barred, (ii) were for dividends that the Corporation never declared and (iii) were based on hypothetical "earnings" of the Corporation entirely unsupported by the Historic Financial Statements which he had received. The Demand Letter went on to level scurrilous charges of fraud against, inter alia, the Majority Shareholders, their former legal counsel, the trial judge in the 1986-1987 case, and a former Attorney General of the Commonwealth of Pennsylvania. The Demand Letter alleged that the Majority Shareholder had prospects of engaging counsel on a contingency basis and contained the following statement of intent: "[A] part of me would get a lot of satisfaction out of seeing you spend potentially fifty to a hundred thousand dollars in legal fees with the potential of losing a million or more. Add to the years of anguish you will spend on a gut wrenching (sic) lawsuit that could go very badly. The way I see it, with this contingency deal. I've got nothing to lose and a lot to gain. On the other hand, you have little to _gain and a lot to lose." (Emphasis included.) On or about September 18, 2007, the Corporation, by letter from its special corporate counsel, offered to redeem the Minority Shareholder's Common Stock for a fixed, cash price in order that "this sad history of litigation and threats of litigation with you can be put in the past." By letter dated September 19, 2007, special counsel indicated that the redemption offer would remain open only until October 16, 2007, after which it would be automatically withdrawn. No response was received from the Minority Shareholder, although United States Postal Service return receipts indicated that he received both letters. On or about January 23, 2008, the Corporation, by letter from its special corporate counsel, again offered to redeem the Minority Shareholder's Common Stock for a fixed, cash price, provided that the Minority Shareholder accept the offer by no later than January 31, 2008. The Minority Shareholder responded to this second offer in a letter to the Corporation dated January 31, 2008, a copy of which is attached hereto as Appendix 3 (the "Response Letter"). In the Response Letter, the Minority Shareholder declined the -3- opportunity to accept the Corporation's offer, but reiterated his intent to "get the ball rolling on this, so called, frivolous litigation." The Response Letter concluded with the following warning: "Upon my return, my attorney will contact your attorney and we will move forward on this "so called," frivolous threat!!!!" Subsequently, counsel for the Minority Shareholder, by letter to the Corporation's special corporate counsel dated May 9, 2008, requested copies of the federal, state and local tax returns and month-to-month financial statements, including accounts payable details, of the Corporation for the prior four year period to enable the Minority Shareholder to make a substantive response to the Corporation's redemption offer. The Corporation, by letter from its special corporate counsel dated on or about May 19, 2008, responded to the Minority Shareholder's information request with copies of the Corporation's federal income tax returns. The Corporation also agreed to obtain and deliver copies of its state tax returns and to provide its local reports upon request of an itemized request from the Minority Shareholder. The Corporation did not, however, provide month-to-month financial statements, noting that the year-end financial statements are the only financial statements that the Corporation routinely prepares. The Corporation further observed that the purported purpose for the Minority Shareholder's information request (i.e., to respond to the Corporation's "settlement offer") was based on a faulty premise, to wit, the Corporation's prior offers had expired by their terms and no offer was then outstanding to purchase the Minority Shareholder's shares. 3. The Special Meeting of the Board of Directors. On October 21, 2008, the Corporation convened a Special Meeting of its Board of Directors to consider its options in light of the ongoing threat of litigation represented by the Demand Letter and the Response Letter (the "Special Board Meeting"). All Directors of the Corporation were present at the Special Board Meeting, which was duly convened. During the Special Board Meeting, the Directors considered a number if issues, including without limitation: a. The Minority Shareholder's history of frivolous and vexatious litigation with the Corporation. b. The evaluations of the Corporation's general counsel and special corporate counsel of the potential validity of the claims outlined in the Demand Letter and Response Letter. C. The potential likelihood that the Minority Shareholder would pursue those claims. d. The potential cost to the Corporation to defend those claims, and the potential adverse impact of such defense (both in terms of potential negative publicity, the potential for incurring significant out-of-pocket costs and the likelihood of distraction of the Corporation's management - and the potential for lost revenue inherent therein), on the Business and business prospects of the Corporation. -4- e. The issues referenced in Section II. 6 of this Proxy Statement. Having duly considered all relevant business and legal issues, the Board concluded that it was in the best interest of the Corporation to take preemptive action to end the Minority Shareholder's involvement in the Business in a manner that would avoid the potential for protracted, costly, frivolous, scurrilous and vexatious litigation as threatened in the Demand Letter and Response Letter. To that end, the Directors unanimously approved the Transaction, a "freeze-out" merger designed to remove the Minority Shareholder as a continuing holder of Common Stock after the effective date thereof by paying him the fair value for his Common Stock in cash (the "Cash Price"). 4. Transaction Mechanics. Prior to the effective date of the Transaction, the Majority Shareholders will form a Pennsylvania Corporation, Visaggio's Acquisition, Inc., and contribute to it as a capital contribution the Cash Price, in exchange for certain shares of capital stock of that company. On the effective date, the Corporation will be merged with and into Visaggio's Acquisition, Inc., with Visaggio's Acquisition, Inc. being the Surviving Corporation, in a statutory merger with the result that: a. The shares of the Corporation's Common Stock then owned by the Majority Shareholders be exchanged, by operation of law, for stock in Visaggio's Acquisition, Inc.; b. The shares of the Corporation's Common Stock then owned by the Minority Shareholder be exchanged for the Cash Price; and C. The name of the Surviving Corporation be changed from "Visaggio's Acquisition, Inc." to "Visaggio's, Inc." The foregoing is to be accomplished by means of the Plan of Merger, a copy whereof is attached hereto as Appendix 1. 5. Determination of Cash Price. Management of the Corporation recently commissioned a valuation of the Corporation's Common Stock (the "Valuation") as of December 31, 2007, by the firm of Boles Metzger Brosius & Ritter PC (the "Valuator"). The purpose of the Valuation was to determine the per-share fair value of the Minority Shareholder's Common Stock on a cash basis as of said date. The Valuation was commissioned to aid the Directors in formulating the Cash Price. Under the analysis provided by the Valuator, consideration was given to: a. The history and nature of the Corporation's business. -5- b. The economic outlook of the United States and that of the Corporation's specific industry in particular. C. The book value of the Corporation's stock and the financial condition of the business, including the appraisal of the Corporation's real property by Noone & Associates dated June 9, 2008, a copy of which is attached hereto as Appendix 4. d. The earning capacity of the Corporation. e. The dividend paying capacity of the Corporation. f. Whether or not the Corporation has goodwill or other intangible value. g. Sales of the stock and size of the block of stock to be valued. h. The market price of publicly traded stocks or corporations engaged in similar industries or lines of business. The Valuator concluded that, based on all relevant valuation factors and in its professional opinion, the fair value of the Minority Shareholder's interest in the Corporation is Zero Dollars and 00/100 Cents ($0). A copy of the Valuation is attached to this Proxy Statement as Appendix 5. The Board of Directors reviewed the Valuation and accepted the Valuator's opinion of value. Nevertheless, in the interests of avoiding protracted and costly litigation, the Board, at a special meeting held on October 21, 2008, unanimously resolved to pay the Minority Shareholder the Cash Price for his interest in the Corporation pursuant to the Transaction. 6. Related-Party Interests. The Majority Shareholders will be the sole shareholders in the Surviving Corporation and are also the sole Directors and Officers of the Corporation. As such, the Majority Shareholders are related parties to the Transaction and have a potential conflict of interest in evaluating the Transaction and its economic terms in their fiduciary roles as Directors and Officers of the Corporation. The Majority Shareholders will receive consideration (shares in the Surviving Corporation) in the Transaction that is substantially different than the Cash Price to be received by the Minority Shareholder, including the right to participate in future earnings of the Business (if any) and future appreciation in value (if any) of the assets of the Business. The Majority Shareholders are current key employees of the Corporation and will likely remain key employees of the business as operated by the Surviving Corporation subsequent to the consummation of the Transaction. -6- 7. Requisite Action of Shareholders. Under the Articles of Incorporation of the Corporation, an affirmative vote of more than fifty percent (50%) of the issued and outstanding Common Stock of the Corporation as of October 31, 2008 is required to approve the Plan of Merger and Transaction described therein. Currently, the Majority Shareholders hold seventy-five percent (75%) of the issued and outstanding Common Stock of the Corporation and have indicated these shares will be voted FOR approval of the Plan of Merger and Transaction described therein. -7- DISSENTING SHAREHOLDERS' RIGHTS Shareholders of the Corporation have the right to dissent from the Transaction and to obtain the fair value of their shares if they comply with the procedures established by Pennsylvania law. Specifically, Title 15, Part II, Subpart B, Chapter 15, Subchapter D of the Pennsylvania Consolidated Statutes (the "BCL Provision") provides that, if the Transaction is consummated, shareholders who follow the procedures specified in the BCL Provision will have the right to receive a payment equal to the "fair value" of their shares as of the moment immediately before the effectuation of the Plan of Merger. To receive the fair value of his or her shares pursuant to the BCL Provision, a shareholder of the Corporation must: - file with the Corporation, prior to the vote at the Meeting of Shareholders, written notice of his or her intention to demand that he or she be paid the fair value for his or her shares if the Plan of Merger is effectuated (the "Notice of Intent to Dissent"); and - effect no change in the beneficial ownership of his or her shares in the Corporation from the date such Notice of Intent to Dissent is filed continuously through the effective date of the Plan of Merger; and - refrain from voting his or her shares in favor of the adoption of the Plan of Merger. A shareholder who fails to comply with any of the foregoing requirements shall not have any right to payment of the fair value of his or her shares under the BCL Provision. Neither a proxy nor a vote against adoption of the Plan of Merger will satisfy the requirement of filing the Notice of Intent to Dissent. To satisfy the requirement that a shareholder must refrain from voting his or her shares in favor of the adoption of the Plan of Merger, the shareholder must either vote against the adoption of the Plan of Merger or abstain from voting. A shareholder that wishes to exercise his or her dissenter's rights under the BCL Provision should not submit a proxy left blank to the Corporation since a proxy left blank will be voted for adoption of the Plan of Merger. A shareholder may not dissent as to less than all shares that he or she owns beneficially. Any Notices of Intent to Dissent and the other notices and correspondence required to be filed with the Corporation pursuant to the BCL Provision should be addressed to: Visaggio's, Inc. 6990 Wertzville Road Enola, PA 17025 If the shareholders adopt the Plan of Merger, the Corporation will deliver by registered mail a further notice, (the "Notice to Demand Payment") to each shareholder who duly filed a Notice of Intent to Dissent and who refrained from voting his or her shares in favor of the Plan of Merger. -8- Within the time frame set forth in the Notice to Demand Payment (which time frame may not be less than 30 days from the mailing of such notice), a dissenting shareholder must submit a demand for payment (the "Payment Demand"), a form for which will be included in the Notice to Demand Payment, and the certificates representing his or her shares to the Corporation. Any shareholder who fails to submit his or her share certificates and the Payment Demand within the required time set forth in the Notice to Demand Payment shall not have any right under the BCL Provision to receive payment of the fair value of his or her shares. Promptly after the completion of the Transaction, or upon timely receipt of the Payment Demand if the Transaction has already been completed, the Corporation will provide to each shareholder that has filed a Payment Demand and has deposited his or her share certificates with the Corporation (and has otherwise complied with the BCL Provisions) (i) certain financial information regarding the Corporation (as required by the BCL Provision), (ii) a statement of the Corporation's estimate of the fair value of such shareholder's shares and (iii) either remittance of the amount of such estimated fair value to such shareholder or written notice that no remittance will be made pursuant to Section 1577 of the BCL Provision (the "Fair Value Notice"). If the Corporation does not choose to remit payment of such amount with the Fair Value Notice, it shall return any share certificates deposited with it by the dissenting shareholder. If the dissenting shareholder believes that the Corporation's estimate is less than the fair value of his shares, such dissenting shareholder will have thirty (30) days after the mailing of the Fair Value Notice to send to the Corporation his or her own estimate of the fair value of his or her shares; provided, however, that if the dissenting shareholder does not file with the Corporation his or her own estimate of fair value within thirty (30) days after the mailing of the Fair Value Notice, he or she shall be entitled to no more than the amount stated in the Corporation's estimate. Within sixty (60) days after the latest of (i) the completion of the Transaction, (ii) timely receipt by the Corporation of a Payment Demand delivered in accordance with the BCL Provision, or (iii) timely receipt by the Corporation of a dissenting shareholder's estimate of the fair value of his or her shares, if any Payment Demands remain unsettled, the Corporation may file in court an application for relief requesting that the fair value of the shares be determined by the court. If the Corporation fails to file such application within such sixty (60) day period, any dissenting shareholder who has not already settled his claim may file in court an application for relief in the name of the Corporation for the same purpose not later than thirty (30) days after the expiration of the sixty (60) day period. If a dissenting shareholder does not file such an application within the thirty (30) day period, he or she will thereafter be entitled to receive only the amount estimated by the Corporation as the fair value of his or her shares. If an application for relief is filed in court in accordance with the foregoing, the court shall determine the fair value of each dissenting shareholder's shares. The court, in its discretion, may appoint an appraiser to receive evidence and recommend a decision on the issue of fair value. Each dissenting shareholder who is made a party to the proceeding shall be entitled to recover the amount by which the fair value of his or her shares is found to exceed the amount, if any, previously remitted to such shareholder, plus interest (at a fair and equitable rate, as determined by the court) from the effective date of the Transaction. The outcome of any such court proceeding cannot be predicted and, accordingly, there is no assurance that a dissenting shareholder that is party to such proceeding would receive -9- I . an amount for his or her shares equal to or greater than the estimated fair value of such shares as determined by the Corporation (though, at a minimum, a dissenting shareholder would receive any amounts remitted by the Corporation to such shareholder, if any, prior to the court proceeding). The Corporation will bear the costs and expenses of the court proceeding, including the cost of any court-appointed appraiser, except that any part of the costs and expenses may be apportioned and assessed as the court deems appropriate against all or some of the dissenting shareholders who are parties to the proceeding and whose action in demanding supplemental payment the court finds to be dilatory, obdurate, arbitrary, vexatious or in bad faith. Fees and expenses of counsel and of experts for the respective parties to the proceeding may be assessed as the court deems appropriate against the Corporation and in favor of any or all of the dissenting shareholders if the Corporation failed to comply substantially with the requirements of the BCL Provision and may be assessed against either the Corporation or a dissenting shareholder, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted in bad faith or in a dilatory, obdurate, arbitrary or vexatious manner in respect to the rights provided by the BCL Provision. -10- IMPORTANT NOTICES WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE MARK, SIGN, DATE, AND RETURN THE ENCLOSED PROXY AS SOON AS POSSIBLE IN THE ENCLOSED ENVELOPE. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE TO APPROVE THE TRANSACTION. ANY SHAREHOLDER WHO OBJECTS TO THE PROPOSED TRANSACTION HAS THE RIGHT TO DISSENT AND OBTAIN PAYMENT OF THE FAIR VALUE OF HIS SHARES BY COMPLYING WITH THE REQUIREMENT OF TITLE 15, PART II, SUBPART B, CHAPTER 15, SUBCHAPTER D OF THE PENNSYLVANIA CONSOLIDATED STATUTES, A COPY OF WHICH IS ATTACHED HERETO AS APPENDIX 6. FAILURE TO RETURN YOUR PROXY AND/OR ATTEND THE MEETING, OR REGISTERING A VOTE IN PERSON OR BY PROXY AGAINST THE PLAN OF MERGER, IS INSUFFICIENT TO INVOKE DISSENTERS' RIGHTS, WHICH MAY ONLY BE INVOKED BY COMPLIANCE WITH THE REQUIREMENTS OUTLINED IN THE ATTACHED APPENDIX 6. VISAGGIO'S, INC. 6990 Wertzville Road Enola, Pennsylvania 17025 -11 - Appendix 1 Plan of Merger PLAN AND AGREEMENT OF MERGER THIS PLAN AND AGREEMENT OF MERGER ("peMPr Aare eement") is made and entered into this 22nd day of October, 2008, by and between VISAGGIO'S, INC., a Pennsylvania corporation (IdsaggiaY), and VISAGGIO'S ACQUISITION, INC., a Pennsylvania corporation ("AQpuOS'Non" and, together with Visaggio's, the "Mming Comorations"). WHEREAS, Visaggio's is a corporation incorporated and existing under the Pennsylvania Business Corporation Law of 1988 (the "HGL"), and Acquisition is a newly formed corporation incorporated under the BCL. WHEREAS, the boards of directors of Visaggio's and Acquisition have approved the terms and conditions of this Merger Agreement and the transactions contemplated hereby in the manner required by the BCL and the Articles of Incorporation and Bylaws of Visaggio's and the Articles of Incorporation and Bylaws of Acquisition. WHEREAS, the boards of directors of Visaggio's and Acquisition intend to submit this Merger Agreement to a vote of their respective shareholders. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements of the parties contained herein, the parties hereto agree as follows: S action 1. Shareholder Apps. Notwithstanding any provision in this Agreement to the contrary, the transactions contemplated by this Merger Agreement, and the rights and obligations of the parties hereto, are subject to the approval of this Merger Agreement by a majority of the shareholders of both Visaggio's and Acquisition. Radom . The r. On the Effective Time (as defined in Section 11 hereof), Visaggio's shall be merged with and into Acquisition (the "Marge[") in accordance with the applicable provisions of the BCL, the separate existence of Visaggio's shall cease, and Acquisition as the surviving corporation shall continue to exist by virtue of the BCL, and shall be governed by the BCL. Spction 3. Articles of Merger. On or before the Effective Time, each of the Merging Corporations shall execute articles of merger (the "ArtiGles of Merger") setting forth the information required by and otherwise in compliance with the BCL. The Articles of Merger shall be filed with the Secretary of the Commonwealth of Pennsylvania, or as otherwise required by the BCL. Section 4. Fffect of Merger. From and after the Effective Time, (a) Acquisition, as the surviving corporation in the Merger, shall have all of the rights, privileges, immunities and powers, and shall be subject to all the duties and liabilities, of a corporation organized under the BCL, (b) Acquisition shall possess all the rights, privileges, immunities and franchises, of a public as well as a private nature, of each of the Merging Corporations, and all property, real, personal and mixed, and all debts due on whatever account, including all choses in action, and all and every other interest of or belonging to or due to each of the Merging Corporations shall be deemed to be vested in Acquisition without further act or deed, and the title to any real estate, or any interest therein, vested in either of the Merging Corporations shall not revert or be in any way impaired by reason of the Merger, (c) Acquisition shall be responsible and liable for all the liabilities and obligations of each of the Merging Corporations, and any claim existing or action or proceeding pending by or against either of the Merging Corporations may be prosecuted as if the Merger had not taken place or Acquisition may be substituted In its place, and (d) neither the rights of creditors nor any liens upon the property of either of the Merging Corporations shall be impaired by the Merger, all with the effect and to the extent provided in the applicable provisions of the BCL. Rection . Amendments to Artides of Incorooratien and RestataMant of Bylaws. From and after the Effective Time, pursuant to the Articles of Merger and without any further action by Visaggio's, Acquisition, or any of their respective officers, directors or shareholders (a) the name of Acquisition, as the surviving corporation of the Merger, shall be changed to ' Visaggio's, Inc."; (b) the Articles of Incorporation of Acquisition immediately prior to the Merger shall be the Articles of Incorporation of the surviving corporation in the Merger (provided that the Articles of Incorporation of Acquisition shall be amended as provided in clause (a) above) and (c) the Bylaws of Acquisition immediately prior to the Merger shall be the Bylaws of the surviving corporation in the Merger. Section 6. Qfflcers nd Directors. From and after the Effective Time, without any further action by Visaggio's, Acquisition, or any of their respective officers, directors or shareholders, the directors and officers of Acquisition shall be those persons who served, respectively, as directors officers of Acquisition immediately prior to the Effective Time, to serve in accordance with the Bylaws of Acquisition until their successors are elected and qualified. Rect!on 77. Conversion of Swcuritiec_. At the Effective Time, by virtue of the Merger and without any further action by Visaggio's, Acquisition, or any of their respective offers, directors or shareholders, pursuant to this Merger Agreement and the BCL: (a) Each share of Acquisition stock issued and outstanding immediately prior to the Effective Time shall remain unchanged and shall continue to remain outstanding as one share of common stock of the Acquisition. (b) Each share of Visaggio's stock issued and outstanding to the individuals listed on Rnhedu? le 7(l hereto (the "Mainrity S?harehairi") immediately prior to the Effective Time shall be converted into one validly issued, fully paid and nonassessable share of common stock of Acquisition. Each certificate evidencing ownership of shares of Visaggio's by the Majority Shareholders immediately prior to the Effective Time shall evidence ownership of an equal number of shares of Acquisition immediately following the Effective Time; 2 (c) Shares of Visaggio's stock issued and outstanding to the individual listed on Schedule 7(c) hereto (the 'Minority areh 1(, d "r") shall be converted into the right to receive an aggregate amount in cash equal to $35,000.00 (the "fast] Price'.). (d) Shares of Visaggio's stock that are owned by Visaggio's as treasury stock immediately prior to the Effective Time shall be canceled and extinguished, without any conversion or the right to receive consideration in respect thereof; (e) Any Dissenting Shares (as hereinafter defined) shall be canceled and extinguished and converted into the right to receive from Acquisition an amount per Dissenting Share determined pursuant to Section 9 hereof; and (f) All shares of stock of Visaggio's shall be cancelled and shall have no further force and effect, and each shareholder of Visaggio's shall thereafter cease to have any rights with respect to such shares of stock, except for the right to receive, without interest thereon, the consideration referenced in Section 7(b), (c) or (e) hereof, as applicable. (g) Any cash to be distributed pursuant to this Section 7 to any party shall be subject to such deductions, offsets and withholdings as are specified elsewhere in this Merger Agreement. $ectool).S. Withholder. Acquisition shall be entitled to withhold from the portion of any cash otherwise payable pursuant to this Merger Agreement to any party such amounts, if any, as it is required to deduct and withhold under the Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated thereunder or any other provision of applicable tax laws. To the extent that amounts are so withheld by Acquisition, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the shares in respect of which such deduction and withholding was made. (a) For purposes of this Merger Agreement, the term "Qessanting Shares" means any shares of Visaggio's with respect to which dissenters' rights apply under Title 15, Part It, Subpart B, Chapter 15, Subchapter D of the Pennsylvania Consolidated Statutes (the "BCL Provision") and held by a Visaggio's shareholder who (i) has not voted in favor of the Merger or consented thereto in writing, (ii) has demanded properly in writing fair value for such shares in accordance with the BCL Provision, and (iii) has not withdrawn such demand or otherwise lost such right to receive the fair value of such shareholder's Dissenting Shares in accordance with the BCL Provision. (b) Notwithstanding any provision of this Merger Agreement to the contrary, holders of Dissenting Shares shall be entitled to receive payment of the fair value of such Dissenting Shares in accordance with the BCL Provision unless and until such holders fail to perfect or effectively withdraw or otherwise lose their rights 3 to payment of fair value under the BCL Provision. If, after the Effective Time, any such holder fails to perfect or effectively withdraws or otherwise loses such right, such Dissenting Shares shall thereupon be treated as if they had been canceled, extinguished and converted into, as of the Effective Time, and represent, the right to receive payment of the portion of the Cash Price to be paid therefor pursuant to Section 7(c) hereof, and such shares shall not be deemed to be Dissenting Shares. None of Acquisition, Visaggio's or their respective officers, directors, employees, attorneys or agents shall be liable for any failure of any Visaggio's shareholder to comply with such holder's duties under this Section 9 and the BCL Provision. Section 10. Fu h _r AcSit oa. Acquisition may, as the surviving corporation of the Merger, at any time after the Effective rime, take any action (including executing and delivering any document) in the name of and on behalf of Visaggio's in order to carry out and effectuate the transactions contemplated by this Merger Agreement. Section 11. Effective Tim Subject to the approval of this Merger Agreement by a majority of the shareholders of both Visaggio's and Acquisition, the Merger shall become effective at the effective time set forth in the Articles of Merger (the "Effective Time"). SachQ012. Cnyeming Law. This Merger Agreement shall be governed by, and construed in accordance with, the internal laws of the Commonwealth of Pennsylvania, without regard to choice or conflict of law principles. Section 1:3. Heading& The headings and captions contained in this Merger Agreement are for reference purposes only and do not constitute a part of this Merger Agreement. Section 14, ntir _ Agreement soumt _ a s. This Merger Agreement (including any schedules incorporated herein by reference) constitutes the entire agreement among the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings among the parties with respect thereto. This Merger Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but such counterparts together shall constitute one and the same instrument. (Signature page follows) 4 IN WITNESS WHEREOF, this Merger Agreement has been executed by the duly authorized representatives of Visaggio's and Acquisition, as of the date first set forth above, VISAGGIO'S, INC. By 46?? Name: 40111 4 GC "Pt 4-016f 'k Title: -7g e s -- .1 a c. . VISAGGIO'S ACQUISITION, INC. By Name; /,ff i J. L.tt 4e fd4' e Title: rl? es _ S w L" 5 Schedule 7(b) Majority Shareholders William Lumadue Rosemary Lumadue Schedule 7(c) Minority Shareholder Keith Shaffer Appendix 2 Demand Letter 07417/2007 13:13 71769776811SNELBAKER BRENNEMAN PAGE 14/15 July 2, 2007 Visaggio's Inc. 6990 Wertzville Rd., Enola, Pa. 17025 Hello Bill & Rosemary, It has been a long time since we've communicated about my interest in the restaurant. As we know, none of us are. getting any younger and the time has come to resolve this matter one way or the other and get it bebind us. Twenty-six years ago, due to my finances at the time, I opted to hire a no name attorney. And I paid a big price for that mistake, I pride myself in not making the same mistake twice. Fortunately, my financial situation has turned around, since then and this time I've made the decision to lairs a local high profile law firm that knows the value of the Visaggio name and one that will not be intimidated by your political connections. Two weeks ago when I scheduled the appointment with the law firm's secretory I didn't go into detail as to what was involved. Last weak, I met with one of their top-guns. When I mentioned Visaggio's Ristomute his ears perked up. When I told him that I have never received a dime is 27 yew for my 25% own=hip he got a wide grin an his faw. In his opinion, based on what he knows about the place, He believes he could make a good arpment that I should have received a nimimvw' of $25,000 per year and most likely considerably more than that in the last 10 years. That is over $500,000 in the last 20 years alone. He also briefly viewed the court orders the judge handed down and also felt there was a considerable amount of monetary value there. Needless to say, the above dollars are damages and have nothing to do with the value of the real estate and the business plus any other assets derived from the corporation over the years, like the Carlisle Pike property, I'm sure you have a pretty good idea of the value of that business, etc. and we both know it is in the millions. The only question is how many million. According to him they will determine this in the discovery stage of the litigation process. About 10 years ago I was told by a local real estate agent you had the place listed for 2.2 million. A lot has happened with the real estate and the restaurant and banquet sales since thew. I'm guessing in the neighborhood of 34 million or more and that doesn't count dauutges outlined above. Who knows what a sympathetic Judge might award me considering the screwing I've been getting on my investment verses the success of OUR venture. If you want to ban$ your hat on the fraudulent Buy/Sell Agreement your X jail- bird, disbarred corporate attomey had me sign in a rush, go for it A honest Judge, whose opinion is not influenced by the attorney general, might view things di#ferendy as it relates to bow the corporation's by-laws were written and r was fired from a corporation that I owned 50% of the stock. In addition, when you consider Mr. Dodd background and the manner in which he handle the sale of my stock, to you, we don't Vbank the buy/sell OW-10/2007 13:13 7176977661 SNELBAKER BRENNEMAN PAGE 15/15 agrement signed by me, in my depressed state-of-mind brought on by the firing and the by-law controversy, is worth the paper it is written on, so to speak. Fortusu ly, for me your actions over the last 27 years have developed a pattern of greed and deceit as it relates to my minority ownership in Vissao's, When I met with the law firm this week we discussed their hourly rate and I was floored when I considered the potential cost to litigate this matter. And I think the' attorney saw that in my facial expression. Two days later I got a csl,l from the attorney I met with earlier. Much to my surprise they offered me a deal I didn't expect or knew existed. When he spoke to his partners and they heard the name Visaggio and the manner in which I've been taken advantage of combined with the potential of dollars involved they agreed to take this case on a contingency basis. The percentage they want is outrageous but I've decided to opt for it simply because they would have the incentive to move this thing along and go for the marbles. On a hourly basis they have the incentive to drag it out as long as possible and the end result is immaterial. And we do know how attorneys can drag things out if they are on the clock. I told the lawyer I wanted to think about my options for a week or so before I sign an agreement with them. Bolding them off for a week or so is the purpose of this letter. Considering the contingency option, I have mixed emotions. A settlement would be quick and a bunch of attorney, on both sides, would not get a big piece of our pie. On the other hand considering how I've been _ _ . (you fW in the spaces) over the last 27 years, a part of we would get a lot of sadsfaction out of seeing you spend potentially fifty to a hundred thousand dollars in legal fees with the potential of losing a million or more. Add to that the years of anguish you will spend on a gut wrenching lawsuit tb2t could go very badly. DEW Ism , with tllu's gEdWe _dea& I've Mtn yfhr, iw to As mention, I really do have mixed emotions. The choice is obviously yours. For ditTerent reason I'll be happy with whatever you decide. I've not reached the big 64 yet, so I can easily deal with 5 plus years of litigation if that is what it takes, especially on a contingency arrangement, I've waited 27 years, I don't care how long it takes considering what lies at the end of the rainbow. To settle this matter I want a meager $20,000 per year for every year since 1985 or $440,000, and not a dime less. Considering a large percentage of dais will be paid in taxes it is not a lot of money by today's standards, your standards and my standards. My phone nurnber is 664-5100. If I don't hear from you by 7/16/07, I will sigh, the agreement and proceed with legal actions to end this 27 year nightmare. Sincerely urs, 1 Keith Shaffer 3 06 Appendix 3 Response Letter Jsttary 31, 2448 TC): V isaggio's Ristnranto 5990 W artrOle Rd., mots, ft 17025 Fwaa: KeitltA,. Sha.il'er 1765 Ash IA. Lebanon, Ira, 17072 Rv- The purchase Of fa io your attarncy a c - you srag a w faTcc'ac s vsiix?o 'or?c . threat of frivolm litiption, About 2 weekg after wndinglhat teVer to vnu my wife weR dtagnoW witb*bmw ceom Sh= Om we bane bean 8 that beetle and I decided to put this one on the bade burner for the time being.. On Wednesday the 6* vm will be ieavmg the Stow fox' about 30 days. Upon my return, T will & ft the ball roiling on this, so called, frivolous 11tlgaadom And once fled kpI clots sM tat'mft we will see tuft bow Eri.volocd it is. A zwo return on a 25% ownefsliip ora very su o rul bmihmese, over 27 years does not sound like a €ivelous mac to wo of to my oovax!L The this we need to ivm is, both attorneys wilt toll us wbFat we w=t to hoax as tmg as they ate extiactmg leage a:motmts of moray ft m wx co ,According to yo" TQrruula my 25"!0 owt h p is rvlh $25,400.11 tb.:t is .11 it is um th how about if I buy your 75% for $75,OM plus rll aw=* the cep. debt. Your answer to my proposal mimm my answer to yow vsal. Upaa tray 1;eumn, my Rt anxey will Contact your attamey egad we will move rorwad on this "so called," rrivolnua thrm.I I11. 9irr?el f ?i? Keith A. Shaer 3 AWN McNees Wallace & Nurick LLC attorneys at law MICHAEL G.JARMAN DIRECT DIAL: (717) 237-5232 DIRECT FAX: (717) 260-1705 E-MAIL ADDRESS: MJARMAN U@MWN.COM q-M TM L?-o N D November 10, 2008 o NOV 1 200 VIA CERTIFIED MAIL RETURN RECEIPT REQUESTED Keith A. Shaffer 1265 Ash Lane Lebanon, PA 17042-9606 Re: Visaggio's, Inc. Our File: 25958-0001 Dear Mr. Shaffer: Visaggio's, Inc. (the "Company") acknowledges receipt of your notice of intention to dissent to the merger of the Company with and into Visaggio's Acquisition, Inc. ("Acquisition") pursuant to that certain Plan and Agreement of Merger, dated October 22, 2008, by and between the Company and Acquisition (the "Plan of Merger"). A special meeting of the shareholders of the Company was held on Tuesday, November 4, 2008, to consider the Plan of Merger in accordance with the notice that you received on or about October 24, 2008. At the special meeting, the Plan of Merger and the transactions contemplated thereby were duly approved and adopted by the requisite vote of the shareholders of the Company, with William and Rosemary Lumadue voting to approve and adopt the Plan of Merger and your shares being voted against the Plan of Merger in accordance with your proxy dated October 30, 2008. In accordance with the shareholder vote, Articles of Merger were filed on Wednesday, November 5, 2008, with the Pennsylvania Department of State ("PA DOS"). The PA DOS acknowledged receipt of the Articles of Merger as of November 5, 2008 and the merger is, therefore, effective as of that date. A copy of the Articles of Merger, as processed by the PA DOS, is attached hereto as Appendix A. On behalf of the Company, we hereby provide you notice pursuant to Section 1575 of the Pennsylvania Business Corporation Law of 1988 (the "BCL") that, to obtain payment of the fair value of your shares of stock in the Company pursuant to Sections 1571 et seq. of the BCL, you must demand payment. To demand payment, you must (i) complete and execute the form for demanding payment attached hereto as Appendix B (the "Demand"), (ii) send the completed and executed Demand to the Company, and (iii) deposit with the Company the P.O. Box 1166. 100 PINE STREET - HARRISBURG, PA 17108-1166 - TEL: 717.232.8000 - FAx: 717.237.5300 - WWW.MWN.COM COLUMBUS, OH - STATE COLLEGE, PA - LANCASTER, PA - HAZLETON, PA - WASHINGTON, DC Keith A. Shaffer November 10, 2008 Page 2 certificates representing your shares of stock in the Company. You must send the completed and executed Demand and your shares certificates to the Company, attention William Lumadue, at 6990 Wertzville Road, Enola, Pennsylvania 17025. For you to obtain payment of the fair value of your shares, the Company must receive the Demand and your share certificates by no later than December 12, 2008. For your reference, and in accordance with the requirements of the BCL, a copy of Sections 1571 of seq. of the BCL and Section 1930 of the BCL are attached hereto as, respectively, Appendix C and Appendix D. For your reference, we also attach a copy of the bylaws of Acquisition as Appendix E. Very truly yours, McNEES WALLACE & NURIC By Michael G. Jarman Attachments c: William and Rosemary Lumadue (w/o attachments) 4 FORM OF DEMAND FOR PAYMENT December 9, 2008 Visaggio's, Inc. Attn: William Lumadue 6990 Wertzville Road E,nola, PA 17025 RE: DEMAND FOR PAYMENT I, Keith A. Shaffer, hereby acknowledge receipt of the letter delivered to me pursuant to Section 1575 of the Pennsylvania Business Corporation Law of 1988 (the "BCL") on behalf of Visaggio's, Inc. (the "Company") by its special counsel, McNees, Wallace & Nurick, LLC, on or about November 10, 2008. I hereby demand payment of the fair value of my shares of stock in the Company in accordance with Sections 1571 et seq. of the BCL. Enclosed please find my Affidavit of Lost Certificate(s) and Indemnity Agreement, as I have not been able to locate my shares of stock in the Cornpany. 1 hereby assert and assure the Company that if I should locate the Certificate(s) I will immediately turn them over to the Company, and all contents of my Affidavit will be fulfilled. I hereby certify that I acquired my shares of stock in the Company on or about August 4, 1980. Sincere] , 01 Keith A. Shaffer JAE:dlh 5069960 • CJ A V/V McNees Wallace & Nurick LLC attorneys at law December 16, 2008 VIA CERTIFIED MAIL RETURN RECEIPT REQUESTED Jeffrey A. Ernico, attorney-in-fact for Keith Shaffer Mette, Evans & Woodside 3401 North Front Street P.O. Box 5950 Harrisburg, PA 17110-0950 Re: Visaggio's, Inc. Our File: 25958-0001 Dear Mr. Ernico: MICHAEL G. JARMAN DIRECT DIAL: (717) 237-5232 DIRECT FAX: (717) 260-1705 E-MAIL ADDRESS: MJARMAN@MWN.COM Visaggio's, Inc. (the "Company") acknowledges receipt of the demand for payment, dated December 9, 2008, by Keith Shaffer for the fair value of his shares of stock in the Company and the accompanying affidavit of lost stock certificates and indemnity agreement executed by Mr. Shaffer on December 1, 2008. The Company has also received the limited power of attorney, dated December 1, 2008, by Mr. Shaffer, which appoints you as his attorney-in-fact in regard to all matters relating to Mr. Shaffer's dissenter's rights arising out of the merger of the Company with and into Visaggio's Acquisition, Inc. ("Acquisition"), which was effected pursuant to that certain Plan and Agreement of Merger, dated October 22, 2008, by and between the Company and Acquisition, and Articles of Merger filed by the Company and Acquisition with the Pennsylvania Department of State on November 5, 2008. On behalf of the Company, we hereby provide you notice, in accordance with Section 1577 of the Pennsylvania Business Corporation Law of 1988 (the "BCL" ), that no remittance of the Company's estimate of the fair value of Mr. Shaffer's shares of stock in the Company will be made pursuant to Section 1577 of the BCL. Further, the Company hereby informs you that it estimates that the fair value of the shares of stock in the Company held of record by Mr. Shaffer is $35,000.00. In accordance with the Company's obligations under Section 1577 of the BCL, I attach (i) as Appendix A hereto, the closing balance sheet of the Company for the fiscal year ended December 31, 2007, together with a statement of income of the Company for the 12-month period then ended, and (ii) as Appendix B hereto, a copy of Sections 1571 et seq. of the BCL. P.O. Box 1166.100 PINE STREET • HARRISBURG, PA 17108-1166 • TEL: 717.232.8000 • FAX: 717.237.5300 • WWW.MWN.COM COLUMBUS, OH • STATE COLLEGE, PA • LANCASTER, PA • HAZLETON, PA • WASHINGTON, DC Jeffrey A. Ernico December 16, 2008 Page 2 Please be advised that the Company does not prepare interim financial statements in the ordinary course of its business. With reference to Section 1577(d) of the BCL, please note that the shares of stock of the Company held of record by Mr. Shaffer are hereby released from any transfer restrictions imposed by reason of the demand for payment. Very truly yours, :cNEES kWA RI By Michael G. Jarman Attachments c: William and Rosemary Lumadue (w/o attachments) Jeffrey A. Ernico December 16, 2008 Page 3 bcc: Keith O. Brenneman, Esquire (w/o attachments) Jeffrey A. Ernico December 17, 2008 Page 4 ioc: 204 165 (both w/o attachments) METTE, EVANS & WOODSIDE A PROFESSIONAL CORPORATION ATTORNEYSAT LAW 3401 NORTH FRONT STREET JEFFREY A. ERNIco P.O. BOX 5950 HARRISBURG, PA 17110-0950 DIRECT DIAL IRS NO. (717) 232-5206 23-1985005 TELEPHONE FAX (717) 282-5000 (717) 2a6-1816 WrTIF-//WWW.MBTWA.com January 8, 2009 EMAIL ADDRESS jaemico@mette.com Visaggio's, Inc. CERTIFIED MAIL Attn: William J. Lumadue RETURN RECEIPT REQUESTED 6990 Wertzville Road Enola, PA 17025 RE: MERGER OF VISAGGIO'S, INC. INTO VISSAGIO'S ACQUISITION, INC. - DISSENTER'S CLAIM Dear Mr. Lumadue: I am writing to you as attorney-in-fact for Keith A. Shaffer, Shareholder of Vissagio's, Inc., in his dissenter's claim. We acknowledge receipt of Mr. Jarman's letter of December 16, 2008, a copy of which is enclosed, indicating that the company's position is that the fair value of the shares of stock owned by Mr. Shaffer is $35,000. This letter will serve as notice upon the corporation of Mr. Shaffer's disagreement with the corporation's estimate of the fair value of Mr. Shaffer's shares. Mr. Shaffer estimates the fair value of his shares to be $500,000. Please note that this estimate by dissenter, Keith A. Shaffer, of the fair value of the shares is made pursuant to Section 1578 of the Business Corporation Law of 1988 and constitutes his demand for payment of said amount from the corporation. Sincerely, Jeffrey A. Emico, Attorney-in-Fact for Keith A. Shaffer, pursuant to Limited Power of Attorney dated December 1, 2008 JAE:dlh cc: Michael G. Jarman, Esquire Keith A. Shaffer 509326vi Wyomissing Office 11105 Berkshire Boulevard, Suite 320 1 Wyomissing, PA 19610 1 Telephone (610) 374-1135 1 Facsimile (610) 371-9510 -0 CE RT IFI ED MAIL - R ECE IPT (Do mesti c m m In C O Co~ Fbe ? O T C3 Im POStrnaAr C] Hero W (End nt ft* ed) N l ye a TOM Postage & Fees Ln C3 SW To E3 Visaggio's,.Inc. /William J. L_um_adue_ orPO'ftxN& .6990Wertzville Road '47' o1a, PA 17025 ¦ Complete items 1, 2, and 3. Also complete item 4 If Restricted Delivery is desired. ¦ Print your name and address on the reverse so that we can return the card to you. ¦ Attach this card to the back of the maiipiece, or on the front if space permits. 1. Article Addressed to: Visaggio's, Inc. c/a=William J. Lumadue 6990 Wertzville Road Enola, PA 17025 (Visaggios/Shaffer) A. Sign to X ? Agent ? Addressee 8. by (Printed !Name) C. D livery `?g c q D. Is delivery address different from item W ?'les If YES, enter delivery address below: ? No 3. Service Type U Certified Mall ? Express Mail 0 Registered 0 Retum Aec elpt for merchandise, 13 Imww mail O C.O.D. 4. Restricted Delivery? (Extra Fee) ? Yes 2. Article Number ?005 1820 0005 2033 6846 (1Yaofer from Service /abet) PS Form 3811, February 2004 Domestic Return Receipt s az M_?s4o AVIV- McNees Wallace & Nurick LLc attorneys at law December 16, 2008 VIA CERTIFIED MAIL RETURN RECEIPT REQUESTED Jeffrey A. Ernico, attorney-in-fact for Keith Shaffer Mette, Evans & Woodside 3401 North Front Street P.O. Box 5950 Harrisburg, PA 17110-0950 Re: Visaggio's, Inc. Our File: 25958-0001 Dear Mr. Ernico: MICHAEL G. JARMAN DIRECT DIAL: (717) 237-5232 DIRECT FAX: (717) 260-1705 E-MAIL ADDRESS: MJARMAN@MWN.COM ? s F- I f` I 1 ? C7 ` J j << ? U d! Visaggio's, Inc. (the "Company") acknowledges receipt of the demand for payment, dated December 9, 2008, by Keith Shaffer for the fair value of his shares of stock in the Company and the accompanying affidavit of lost stock certificates and indemnity agreement executed by Mr. Shaffer on December 1, 2008. The Company has also received the limited power of attorney, dated December 1, 2008, by Mr. Shaffer, which appoints you as his attorney-in-fact in regard to all matters relating to Mr. Shaffer's dissenter's rights arising out of the merger of the Company with and into Visaggio's Acquisition, Inc. ("Acquisition"), which was effected pursuant to that certain Plan and Agreement of Merger, dated October 22, 2008, by and between the Company and Acquisition, and Articles of Merger filed by the Company and Acquisition with the Pennsylvania Department of State on November 5, 2008. On behalf of the Company, we hereby provide you notice, in accordance with Section 1577 of the Pennsylvania Business Corporation Law of 1988 (the "BCL" ), that no remittance of the Company's estimate of the fair value of Mr. Shaffer's shares of stock in the Company will be made pursuant to Section 1577 of the BCL. Further, the Company hereby informs you that it estimates that the fair value of the shares of stock in the Company held of record by Mr. Shaffer is $35,000.00. In accordance with the Company's obligations under Section 1577 of the BCL, I attach (i) as Appendix A hereto, the closing balance sheet of the Company for the fiscal year ended December 31, 2007, together with a statement of income of the Company for the 12-month period then ended, and (ii) as Appendix B hereto, a copy of Sections 1571 et seq. of the BCL. P.O. Box 1166.100 PINE STREET - HARRISBURG, PA 17108-1166 - TEL: 717.232.8000 - FAX: 717.237.5300 - WWW.MWN.COM COLUMBUS, OH - STATE COLLEGE, PA - LANCASTER, PA - HAZLETON, PA - WASHINGTON, DC 1 • Jeffrey A. Ernico December 16, 2008 Page 2 Please be advised that the Company does not prepare interim financial statements in the ordinary course of its business. With reference to Section 1577(d) of the BCL, please note that the shares of stock of the Company held of record by Mr. Shaffer are hereby released from any transfer restrictions imposed by reason of the demand for payment. Very truly yours, 4McNEESA RI ?' . By 1 Michael G. Jarman Attachments c: William and Rosemary Lumadue (w/o attachments) Jeffrey A. Ernico December 16, 2008 Page 3 bcc: Keith O. Brenneman, Esquire (w/o attachments) Jeffrey A. Ernico December 17, 2008 Page 4 ioc: 204 165 (both w/o attachments) ? r n CERTIFICATE OF SERVICE I certify that I am this day serving a copy of the foregoing document upon the person(s) and in the manner indicated below, which service satisfies the requirements of the Pennsylvania Rules of Civil Procedure, by depositing a copy of same in the United States Mail at Harrisburg, Pennsylvania, with first-class postage, prepaid, as follows: Michael G. Jarman, Esquire McNees, Wallace & Nurick P.O. Box 1166 100 Pine Street Harrisburg, PA 17108-1166 Attorney for Visaggio's Acquisition, Inc. METTE, EVANS & WOODSIDE KAT WPSON, ES, Sup Ct.I kD. o. 28960 3461 North ront Street P. O. Box 5950 Harrisburg, PA 17110-0950 (717) 232-5000 - Phone (717) 236-1816 - Fax Attorneys for Keith A. Shaffer Date: March 30, 2009 4 51983tv1 (?D FILED-CYTICE OF THE 2009 APR -3 PM 3: 3 1 j?Ty PENIN&LVANIA 4?$ -SO PD Arn W q?D?(o ?a a ua(o IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLV, IN RE: VISAGGIO'S, INC. PETITION OF KEITH A. SHAFFER, NO. 2009-2122 DISSENTING SHAREHOLDER PRAECIPE FOR ENTRY OF APPEARANCE TO THE PROTHONOTARY: Please enter our appearance as attorneys for Visaggio's, Inc. in the Respectfully submitted, MCNEES ^ALLACE & BY_ James P. DeAngelo Pa. I.D. No. 62377 Dana M. Windisch Pa. I.D. No. 208718 100 Pine Street P.O. Box 1166 Harrisburg, PA 17108 (717) 232-8000 dindisch@mwn.com LLC 1166 matter. Dated: April I Attorneys for Visaggio's, Inc. , 2009 CERTIFICATE OF SERVICE The undersigned hereby certifies that on this date a true and correct copy of the foregoing document was served via first class mail, postage prepaid, upon the folio ine: Kathryn L. Simpson, Esquire Mette, Evans & Woodside 3401 North Front Street P.O. Box 5950 Harrisburg, PA 17110 It 10, Dana M. Windisch Attorney for Visaggio's Inc. Dated: April J , 2009 F Tt{c P' t'l. N." RF?Y 2009 APR IS AM 11 : 56 cull as ` :. Kathryn L. Simpson, Esquire Sup. Ct. I.D. No. 28960 METTE, EVANS & WOODSIDE 3401 North Front Street P.O. Box 5950 Harrisburg, PA 17110-0950 Phone: (717) 232-5000 klsimpson@mette.com IN RE: VISAGGIO'S, INC. IN THE COURT OF COMMON PLEAS CUMBERLAND COUNTY, PENNSYLVANIA PETITION OF KEITH A. SHAFFER, DISSENTING SHAREHOLDER NO. 2009-2122 AMENDED PETITION FOR RELIEF PURSUANT TO 15 Pa.C.S.A. 41579 Keith A. Shaffer, by his counsel, Mette, Evans & Woodside, files the following Amended Petition for Relief seeking Court determination of the valuation of his ownership interest in Visaggio's, Inc. pursuant to 15 PA.C.S.A. §1579 and avers in support thereof: 1. Visaggio's, Inc. is a Pennsylvania corporation with a place of business at 6990 Wertzville Road, Enola, Cumberland County, Pennsylvania 17025. 2. Keith A. Shaffer is an adult individual residing at 1265 Ash Lane, Lebanon, Lebanon County, Pennsylvania 17042-9606, and owner of 25% of the stock of Visaggio's, Inc. 3. On or about October 22, 2008, Shaffer was given notice of a Special Meeting of the Shareholders of Visaggio's, Inc. scheduled for November 4, 2008, to consider a merger of V i Visaggio's, Inc. with and into Visaggio's Acquisition, Inc. A copy of the Notice is attached as Exhibit 1. 4. A Proxy Statement was included with the letter. A copy of the Proxy Statement is attached as Exhibit 2. 5. Shaffer returned his Proxy indicating that he would vote against the merger. 6. At the November 4, 2008 Special Meeting, the merger and transactions contemplated thereby were approved and adopted by the Shareholders. A copy of the letter advising Shaffer of the action is attached as Exhibit 3. 7. A Notice dated November 10, 2008, was provided to Shaffer, pursuant to 15 Pa. C.S.A. § 1575, indicating that he must demand payment for the fair value of his stock. 8. Shaffer submitted his Demand for payment on December 9, 2008. A copy of the Demand is attached as Exhibit 4. 9. On December 16, 2008, Visaggio's, Inc., responded to Shaffer that it estimated the fair value of his shares to be $35,000. A copy of the response if attached as Exhibit 5. 10. On January 8, 2009, in correspondence from the Attorney-in-Fact for Shaffer, Visaggio's, Inc. was notified that Shaffer disagreed with the corporation's "fair value" of $35,000, estimated his fair value estimate of his shares to be $500,000, and made a demand for that amount. A copy of the correspondence is attached as Exhibit 6. 11. Demand for payment remains unsettled and the 60-day period provided by the statute (15 Pa. C.S.A. §1579) for Visaggio's, Inc. to respond has passed. 12. This Court has jurisdiction pursuant to 15 Pa. C.S.A. §I579(c). 13. Shaffer seeks a determination by this court of the fair value of his shares. 2 14. Pursuant to Local Rule 208.3(a), no Judge has ruled on any issues in the same or related matter. 15. Concurrence in this matter was sought from opposing counsel but was not obtained. WHEREFORE, Keith A. Shafer, dissenting shareholder of Visaggio's, Inc., respectfully requests this Honorable Court determine the fair value of his 25% interest in the stock of Visaggio's, Inc. pursuant to 15 Pa.C.S.A. § 1579. Respectfully submitted, METTE, EVANS & WOODSIDE By: KATI-JRYN IMPSON, Sup. Ct. I.D. 0 28960 RONALD L. FINCK, ESQUIRE Sup. Ct. I.D. No. 89985 3401 North Front Street P. O. Box 5950 Harrisburg, PA 17110-0950 (717) 232-5000 - Phone (717) 236-1816 - Fax Attorneys for Keith A. Shaffer Date: April 17, 2009 3 CERTIFICATE OF SERVICE I certify that I am this day serving a copy of the foregoing document upon the person(s) and in the manner indicated below, which service satisfies the requirements of the Pennsylvania Rules of Civil Procedure, by depositing a copy of same in the United States Mail at Harrisburg, Pennsylvania, with first-class postage, prepaid, as follows: Dana M. Windisch, Esquire McNees, Wallace & Nurick P.O. Box 1166 100 Pine Street Harrisburg, PA 17108-1166 Attorney for Visaggio 's Acquisition, Inc. METTE, EVANS & WOODSIDE By: KATYRYN IMPSON, ES Sup. t. I.D. N . 28960 3401 North Front Street P. O. Box 5950 Harrisburg, PA 17110-0950 (717) 232-5000 - Phone (717) 236-1816 - Fax Attorneys for Keith A. Shaffer Date: April 17, 2009 4 `7 THE M == ;V Hit Tt R ?- t 20 ,29 APR 20 Pi i 1: u 6 McNEES WALLACE & NURICK LLC James P. DeAngelo Attorney ID No. 62377 Dana M. Windisch Attorney ID No. 208718 100 Pine Street P. O. Box 1166 Harrisburg, PA 17108-1166 (717) 237-5470 (717) 260-1679 facsimile jdeangel@mwn.com Attomeys for Visaggio's, Inc. IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA IN RE: VISAGGIO'S, INC. PETITION OF KEITH A. SHAFFER, DISSENTING SHAREHOLDER NO. 2009-2122 PRELIMINARY OBJECTIONS OF VISAGGIO'S, INC. TO PLAINTIFF'S AMENDED PETITION FOR RELIEF PURSUANT TO 15 PA.C.S.A. 61579 Visaggio's, Inc. ("Visaggio's"), by and through its attorneys, McNees Wallace & Nurick LLC, hereby file these Preliminary Objections to the Amended Petition For Relief Pursuant To 15 Pa.C.S.A. §1579 filed by Petitioner Keith A. Shaffer ("Petitioner"). First Preliminary Objection - Preliminary Objection For Improper Service of a Complaint 1. Pa.R.C.P. No. 1028(a)(1) permits a party to assert a preliminary objection based upon improper service of original process. 2. On or about April 3, 2009, Petitioner filed a Petition For Relief Pursuant To 15 Pa.C.S.A. §1579 ("Petition"). Thereafter, on or about April 20, 2009, Petitioner filed an Amended Petition For Relief Pursuant To 15 Pa.C.S.A. §1579 ("Amended Petition"). 3. Petitioner did not serve the Petition or the Amended Petition upon Visaggio's in the manner prescribed in Pa.R.C.P. No. 400(a). 4. Pa.R.C.P. No. 440, allowing service by mail of legal documents other than original process, including petitions, is not applicable to the current case because original process, for example a writ of summons or a complaint, has never been served in this proceeding. 5. "The Pennsylvania Rules of Civil Procedure are applicable to all actions which are formally asserted as a civil action and other forms of action where the Supreme Court has incorporated the rules by reference." Airo Die Casting, Inc. v. Westmoreland County Bd. of Assessment AQDeals, 706 A.2d 1279, 1282 (Pa. Commw. Ct. 1998); Pa.R.C.P. No. 1001. 6. Visaggio's does not concede that Petitioner has properly begun a civil action by filing a petition. The Petition and Amended Petition are the only documents filed to date, and Visaggio's believes Petitioner is trying to proceed without completing service of original process. WHEREFORE, Visaggio's, Inc. requests that its Preliminary Objections be sustained and the Petition and Amended Petition be dismissed. Second Preliminary Obiection - Preliminary Obiection For Failure of a Pleading to Conform to Law 7. Visaggio's incorporates by reference paragraphs 1 through 6 of its Preliminary Objections as if set forth fully herein. 8. Pa.R.C.P. No. 1028(a)(2) permits a parry to assert a preliminary objection when a pleading fails to conform to law. 2 • 9. Under the Pennsylvania Rules of Civil Procedure, a civil action is properly commenced via either: (1) a praecipe for writ of summons, or (2) a complaint. Pa.R.C.P. No. 1007. 10. "An action brought by petition and rule, neither authorized by statute nor auxiliary to jurisdiction already obtained and not designed to correct the court's own records, is a nullity and confers no jurisdiction on the court." In re Casale, 517 A.2d 1260, 1263 (Pa. 1986). 11. 15 Pa.C.S.A. §1579 does not prescribe a method of commencing an action when a shareholder seeks to have a court determine the fair value of his shares; thus, Petitioner must commence an action in accordance with the Pennsylvania Rules of Civil Procedure. 3 E WHEREFORE, Defendant Visaggio's, Inc. requests that its Preliminary Objections be sustained and Petition and Amended Petition be stricken. McNEES WALLACE & NURICK LLC By Tames P. DeAngelo Attorney ID No. 62377 Dana M. Windisch Attorney ID No. 208718 100 Pine Street P. O. Box 1166 Harrisburg, PA 17108-1166 (717) 237-5470 (717) 260-1679 facsimile jdeangel@mwn.com Dated: May ?L, 2009 Attomeys for Visaggio's Inc. 4 10 CERTIFICATE OF SERVICE The undersigned hereby certifies that a true and correct copy of the foregoing document was served by first class U.S. mail upon the following: Kathryn Simpson, Esq. Mette, Evans & Woodside 3401 North Front Street P.O. Box 5950 Harrisburg, PA 17110 Dana M. Windisch Attomeys for Maggio's Inc. Dated: May, 2009 A, . RLED-OFFICE OF THE PPQTHCNOTAPY 2009 MAY -6 PM 1. 26 cum b 14J ? °- uNTY t'?"JNVLV ^Nl: IN RE: VISAGGIO'S INC. IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA PETITION OF KEITH A. SHAFFER DISSENTING SHAREHOLDER NO. 09-2122 CIVIL IN RE: PETITION FOR RELIEF PURSUANT TO 15 PA.C.S.A. SECTION 1579 ORDER AND NOW, this / t day of June, 2009, William Duncan, Esquire, is appointed appraiser to make a recommendation to the court as to the value of the stock. The parties to be billed by the appraiser at his customary hourly rate. BY THE COURT, -.//Michael G. Jarman, Esquire For Visaggio's Inc. .,,?athryn L. Simpson, Esquire For Keith A. Shaffer _--14illiam Duncan, Esquire Court-appointed Appraiser :rlm (26pizs MaILid. L11 - 0 Kathryn L. Simpson, Esquire Sup. Ct. I.D. No. 28960 METTE, EVANS & WOODSIDE 3401 North Front Street P. O. Box 5950 Harrisburg, PA 17110-0950 (717) 232-5000 - Telephone (717) 236-1816 - Facsimile klsimpson@mette.com aoio?4uG/G ?.?? 3 ? a 7 Attorneys for Keith A Shaffer IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA IN RE: VISAGGIO'S, INC. PETITION OF KEITH A. SHAFFER, DISSENTING SHAREHOLDER NO. 2009-2122 PETITIONER'S POST-HEARING SUBMISSION Petitioner, Keith Shaffer, by his counsel, Mette, Evans & Woodside, submits the following Post-Hearing Submission: PROCEDURAL HISTORY 1. On March 30, 2009, Petitioner initiated this matter by filing a Petition for Relief Pursuant to 15 Pa.C.S.A. § 1579, after fulfilling the prerequisites of the Pennsylvania dissenters' rights statute. 15 Pa.C.S.A. § 1571, et seq. 2. An Amended Petition was filed on April 20, 2009. Ex.20. 3. Respondent, Visaggio's, Inc., filed preliminary objections on May 5, 2009. 4. On June 1, 2009, William A. Duncan was appointed by the Court of Common Pleas of Cumberland County to be the Appraiser in the matter. 1 5. A hearing was originally scheduled in October 2009 but the parties requested it be rescheduled to accommodate discovery. 6. A new hearing date was set for January 13, 2010. 7. Testimony was taken on January 13 and 14. 8. The testimony was not completed and a new date was scheduled for March but then postponed until June 4, 2010, when all parties could be present. 9. Testimony was completed on June 4, 2010. 10. On July 7, 2010, the Appraiser scheduled a view of the Visaggio's premises. 11. On July 27, 2010, the Appraiser viewed the Visaggio's facility with counsel. 12. At that time, the Appraiser requested that Visaggio's submit its current and past property insurance statements. 13. Those materials were provided by Visaggio's counsel on August 5, 2010. 14. At the June 4 hearing, the Appraiser set the requirements for the post- hearing submission and a due date of August 15, 2010, later changed to August 16, 2010. FACTS 15. Visaggio's, Inc. is a Pennsylvania corporation with a place of business at 6990 Wertzville Road, Enola, Cumberland County, Pennsylvania 17025. AP ¶ 1; HT 23.1 ' The letters "AP" refer to the Amended Petition filed in this case; the letters "HT" refer to the Hearing Transcript. 2 16. Keith A. Shaffer is an adult individual residing in Lebanon, Pennsylvania, and owner, as of October 2008, of 25% of the stock of Visaggio's, Inc. AP 12; HT 26. 17. On or about October 22, 2008, Mr. Shaffer was given notice of a Special Meeting of the Shareholders of Visaggio's, Inc. scheduled for November 4, 2008, to consider a merger of Visaggio's, Inc. with and into Visaggio's Acquisition, Inc. AP ¶ 3 18. A Proxy Statement was included with the letter. Shaffer returned his Proxy indicating that he would vote against the merger. AP ¶ 4 and 5 and Ex. 2, thereto; HT 27. 19. At the November 4, 2008 Special Meeting, the merger and transactions contemplated thereby were approved and adopted by the Shareholders. AP ¶ 6 and Ex. 3, thereto. 20. A Notice dated November 10, 2008, was provided to Shaffer, pursuant to 15 Pa. C.S.A. §1575, indicating that he must demand payment for the fair value of his stock. AP 17. 21. Shaffer submitted his Demand for payment on December 9, 2008. AP ¶ 8 and Ex. 4, thereto. 22. On December 16, 2008, Visaggio's, Inc., responded to Shaffer that it estimated the fair value of his shares to be $35,000. AP ¶ 9 and Ex. 5, thereto. 23. On January 8, 2009, in correspondence from the Attorney-in-Fact for Shaffer, Visaggio's, Inc. was notified that Shaffer disagreed with the corporation's "fair value" of $35,000, estimated his fair value estimate of his shares to be $500,000, and made a demand for that amount. AP ¶ 10 and Ex. 6, thereto; HT 27. 3 24. Demand for payment remained unsettled and the 60-day period provided by the statute (15 Pa. C.S.A. §1579) for Visaggio's, Inc. to respond passed. AP ¶ 11 25. Shaffer sought a determination of the value of his shares pursuant to 15 Pa. C.S.A. §1579(c). 4 APPLICABLE LAW 1. DISCOUNTS Pennsylvania's statute on dissenter's rights provides the process under which a shareholder who dissents to a proposed corporate action can demand payment for his/her shares of stock. 15 Pa.C.S.A. § 1579. Mr. Shaffer satisfied all of the procedural prerequisites of the statute and this matter is before the Court via the Appraiser under that statute. The statute also provides guidance as to what the dissenting shareholder is entitled to receive: (d) MEASURE OF RECOVERY.-- Each dissenter who is made a party shall be entitled to recover the amount by which the fair value of his shares is found to exceed the amount, if any, previously remitted, plus interest. 15 Pa.C.S.A. § 1579(d). "Fair value" is defined as follows: "FAIR VALUE." The fair value of shares immediately before the effectuation of the corporate action to which the dissenter objects, taking into account all relevant factors, but excluding any appreciation or depreciation in anticipation of the corporate action. 15 Pa.C.S.A. § 1572. In the instant case, Mr. Shaffer owned 25% of the shares of Visaggio's, Inc. immediately before the merger was effectuated. The Appraiser has inquired about the applicability of a minority discount and/or a marketability discount on those shares. There is nothing contained in the Pennsylvania statutes that specifically deals with such discounts. There are no Pennsylvania cases on the issue. 5 However, the Comments to section 1572 provide some information about the intent of the drafters of the section. The Amended Committee Comment (1990) to section 1572 attempted to define the phrase "taking into account all relevant factors," contained in the definition of "fair value." The Comment stated that the term was intended "to import the Delaware approach of simply receiving (in a manner similar to eminent domain takings of securities) investment banker opinions concerning the price an informed and willing buyer would pay for the shares on the valuation date." This statement could be read to mean that "fair value" was, in fact, synonymous with "fair market value." However, in 2001, the Committee deleted this statement "as a potentially misleading description of the Delaware law and what is intended under this section. Instead, the court should determine in each case the `relevant factors' that should be taken into account." Should a minority discount or a marketability discount be considered as a "relevant factor" in deciding the "fair value" of a dissenter's shares? Initially, it should be noted that the two discounts are different, despite treatment as the same by many courts. The distinction between the two types of discounts was explained well by the New Jersey Supreme Court: A minority discount adjusts for lack of control over the business entity on the theory that non-controlling shares of stock are not worth their proportionate share of the firm's value because they lack voting power to control corporate actions. A marketability discount adjusts for a lack of liquidity in one's interest in an entity, on the theory that there is a limited supply of potential buyers for stock in a closely-held corporation. Lawson Mardon Wheaton v. Smith, 734 A.2d 738, 747 (N.J. 1999) 6 Delaware law does not permit discounts in determining the "fair value" of dissenters' shares based on either marketability or lack of control. The Delaware Supreme Court's decision in Cavalier Oil Corp. v. Harnett, 564 A.2d 1137 (Del. 1989), is considered the leading case regarding discounts. In Cavalier, that Court held that discounts should not be used in determining the "fair value" of a dissenter's shares: [T]he appraisal process is not intended to reconstruct a pro forma sale but to assume that the shareholder was willing to maintain his investment position, however slight, had the merger not occurred. Discounting individual share holdings injects into the appraisal process speculation on the various factors which may dictate the marketability of minority shareholdings. More important, to fail to accord to a minority shareholder the full proportionate value of his shares imposes a penalty for lack of control, and unfairly enriches the majority shareholders who may reap a windfall from the appraisal process by cashing out a dissenting shareholder, a clearly undesirable result. Id. at 1145. The Pennsylvania definition of "fair value" is similar in most respects to those enacted in other jurisdictions, as might be expected since it was patterned after the Model Business Corporation Act. Cases decided in those jurisdictions where the definition of "fair value" is similar to that in Pennsylvania generally reject the application of discounts. In Pueblo Bancorporation v. Lindoe, Inc., 63 P.3d 353 (Co. 2003), the Colorado Supreme Court held that under the Colorado dissenter's rights statute ,2 "fair value" means the shareholder's proportionate ownership in the value of the corporation and, therefore, no marketability discount may be applied. Id. at 356. In reaching this decision, the Court found that dissenter's rights statutes take away minority shareholders' Colorado defines "fair value" with respect to a dissenter's shares, as "the value of shares immediately before the effective date of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action except to the extent exclusion would be inequitable." 2 C.R.S. § 7-113-101(4). 7 rights to resist corporate changes and, in exchange, give those minority shareholders compensation for what they have lost - a proportionate ownership interest in the corporation. "A marketability discount is inconsistent with this interpretation; it injects unnecessary speculation into the appraisal process and substantially increases the possibility that a dissenting shareholder will be under-compensated for his ownership interest." Id. at 364. As the Colorado Supreme Court noted in the Pueblo Bancorporation opinion, its interpretation of "fair value" is consistent with the interpretation adopted by most courts that have considered the issue. Id. at 366. At the time the opinion was authored, only six states with "fair value" statutes had clearly concluded that fair value may include marketability discounts. Id. at 367. The Vermont Supreme Court held that a "stockholder is entitled to be paid for his or her `proportionate interest in a going concern. "' In re 75,629 Shares of Common Stock of Trapp Family Lodge, Inc., 725 A.2d 927, 931 (Vt. 1999). To find fair value, the factfinder "must determine the best price a single buyer could reasonably be expected to pay for the corporation as an entirety and prorate this value equally among all shares of its common stock. Under this method, all shares of the corporation have the same fair value." Id. The Wyoming Supreme Court noted that since Cavalier Oil, the split in authority has narrowed, with most courts following the lead of the Delaware Supreme Court and holding that discounts should not be considered in the valuation of dissenters' shares. Brown v. ARP and Hammond Hardware Company, 141 P.3d 673, 683 (Wyo. 2006). In that case, the Court held: The minority discount `inflicts a double penalty upon the minority shareholder and upsets the quid pro quo underlying dissenters' appraisal rights. The shareholder not only lacks control over corporate decision making, but also upon the application of a minority discount receives less than proportional value for loss of that control." Id. citing HMO-W Inc. v. SSMHealth Care Sys., 611 N.W.2d 250,257 (Wisc. 2000) Based on these cases, neither a marketability discount nor a minority discount should be applied in the instant case. II. OPINION TESTIMONY In his testimony, William Lumadue opined that he would sell Visaggio's for $3 to $5 million. HT 271. Owners of property are considered experts when testifying as to the property's value. Semasek v. Semasek, 502 A.2d 109, 112 (Pa. 1985) citing Sgarlat Estate v. Commonwealth, 158 A.2d 541, cert. denied, 364 U.S. 817, 81 S.Ct. 49, 5 L.Ed.2d 48 (1960). III. STATUTE OF LIMITATIONS ON WAGE CLAIMS The statute of limitations for a claim of unpaid wages and benefits is three years under the Pennsylvania Wage Payment and Collection Law and four years under a breach of contract theory. Haft v. United States Steel Corp., 451 A.2d 445 (Pa.Super. 1981). 9 TESTIMONY 26. The testimony in the case came from Mr. Shaffer, William Lumadue, and the expert witnesses. 27. Keith Shaffer held a 25% interest in Visaggio's, Inc. prior to the merger. HT 26. 28. Patrick Noone, Visaggio's real estate appraiser, valued the subject real property at $1,550,000. HT 315. 29. William Rothman, Petitioner's real estate appraiser, valued the subject real property at $1,900,000. HT 68. 30. While both real estate appraisers used similar methodologies, Petitioner's real estate expert, William Rothman, separately valued the garage (HT 66) but Visaggio's expert, Patrick Noone, made no mention of it in his testimony or report. Ex. 5 31. As was obvious at the view conducted on July 27, 2010, the garage is large, spacious and being used for classic car restoration and repair. 32. The record also reflects that an appraisal done for Visaggio's just 17 months earlier (dated December 4, 2006) concluded that the sales comparison valuation of the real estate was $2,876,000. HT 327. 33. Visaggio's business valuation expert, William B. Boles, issued a report dated July 7, 2008, and as of December 31, 2007, where he concluded that the value for a 25% ownership interest in the common stock of Visaggio's was $0. Ex. 11. 34. If the value of 25% of the ownership interest in Visaggio's is $0, then, by definition, the value of the corporation is also $0. 10 35. While making an argument through Mr. Boles that a 30 year old, successful business that supports four members of the Lumadue family and many other employees is worth nothing, Mr. Lumadue nonetheless testified that he would consider selling the business for between $3 and $5 million. HT 271. 36. Based on this valuation, a 25% share of Visaggio's would be worth between $750,000 and $1,250,000. 37. Visaggio's provided business valuation information to its insurer for its December 2007 renewal of its casualty insurance: $2,889,000 for buildings (consistent with the December 2006 appraisal) and $642,000 for business personal property., VIS 0872. 38. Since casualty insurance does not include the value of the land, that value would have to be added in to arrive at a total value. 39. Adding the value of the land as found by Mr. Rothman of $500,000 (HT 65; Ex. A) the total asset value would equal $4,031,000 and adding the land value found by Mr. Noone of $575,000 (HT 330; Ex. 5), the total asset value would equal $4,106,000. 40. The value of a 25% share of Visaggio's as of December 2007 would range, based on the values provided to the insurance company and for the land, from $1,007,750 to $1,026,000, less liabilities. 41. Liabilities from the 2007 financial statement total $1,718,174, (Ex. H) making the net value range from $2,312,826 to $2,387,826. 42. A 25% share of the net value ranges from $578,206.50 to $596,956.50. These values did not change as a result of the Noone appraisal. Insurance information reflects that the December 2008 amount for the buildings was $2,976,000. VIS 0875. 11 43. James Smeltzer, Petitioner's business valuation. expert testified that he reviewed the valuation prepared by Mr. Boles and made adjustments, including using the real estate value provided by Mr. Rothman and making other changes to arrive at a positive value for the Petitioner's interest. HT 98. 44. Central to Mr. Smeltzer's calculations were the elimination of the adjustment for contingent liability of $1,300,000 for payments allegedly due for back salary owed to William and Rosemary Lumadue. HT 109-123. 45. That amount appeared for the first time on the financial statement prepared for 2007, and dated March 6, 2008. HT 110; Ex. H. 46. The year 2007 was a remarkable one in which to quantify the alleged contingent liability as it was the year in which the valuation prepared by Mr. Boles was based. 47. Adding $1.3 million to the salaries already paid to the majority shareholders would have the effect of compensating them beyond what was paid for similar services in similar businesses. HT 120. 48. Mr. Smeltzer concluded that had the $1.3 million in salaries been paid out as they were allegedly earned, the corporation would not have survived. HT 122. 49. The unreasonable compensation reduces the value of the business and results in a minority freeze-out. HT 390. 50. The authorization of the salaries to be paid to the majority shareholders was never presented to nor voted upon by Mr. Shaffer. Ex. 2. 12 51. Mr. Smeltzer also recognized $111,747 as "additional non operating assets" which was excess cash on hand at the valuation date which could not be matched with fixed asset purchase. HT 392-393. 52. Mr. Smeltzer testified that payment of expenses for significantly increased accounting and legal fees ($75,000) was not an expense that could or should have gone unrecognized. Id. 53. Mr. Smeltzer's conclusion is that based on the methodology employed by Mr. Boles, as corrected for oversights and improper additions and/or deletions, the value of a 25% share was $225,000. 13 CONCLUSIONS OF LAW 54. Where a dissenting shareholder has made a demand for payment for his or her shares of stock, Pennsylvania law provides that the dissenting shareholder is to be the "fair value" of a dissenter's shares of stock. 15 Pa.C.S.A. § 1571, et seq (the "Pennsylvania Dissenter's Rights Statute"). 55. "Fair value" is defined as "the fair value of shares immediately before the effectuation of the corporate action to which the dissenter objects, taking into account all relevant factors, but excluding any appreciation or depreciation in anticipation of the corporate action." 15 Pa.C.S.A. §1572. 56. The Pennsylvania Dissenter's Rights Statute does not indicate whether there should or could be an adjustment to the value of the dissenter's share for a minority discount or a marketability discount. 57. A minority discount adjusts for lack of control over the business entity on the theory that non-controlling shares of stock are not worth their proportionate share of the firm's value because they lack voting power to control corporate actions. Lawson Mardon Wheaton v. Smith, 734 A.2d 738, 747 (N.J. 1999) 58. A marketability discount adjusts for a lack of liquidity in one's interest in an entity, on the theory that there is a limited supply of potential buyers for stock in a closely-held corporation. Id. 59. The Delaware Supreme Court decision in Cavalier Oil Corp. v. Harnett, 564 A.2d 1137 (Del. 1989), is considered the leading case regarding discounts. 60. In Cavalier, that Court held that discounts should not be used in determining the "fair value" of a dissenter's shares. 14 61. Since Cavalier Oil, most courts have following the lead of the Delaware Supreme Court and holding that discounts should not be considered in the valuation of dissenters' shares. Brown v. ARP and Hammond Hardware Company, 141 P.3d 673, 683 (Wyo. 2006). 62. Adopting the reasoning of Cavalier Oil, no discounts will be applied to the valuation of the 25% of Visaggio's stock owned by Mr. Shaffer. 63. The real estate experts testified that the value of the real property owned by Visaggio's ranged from $1,550,000 (Mr. Noone, Visaggio's expert) to $1,900,000 (Mr. Rothman, Mr. Shaffer's expert). 64. An appraisal done for Visaggio's 17 months prior to the effective date of the Noone appraisal valued the real property at $2,876,000. HT 327. 65. The Noone appraisal did not include a value for the garage/storage building. 66. The garage/storage building is being used for the repair/storage of classic cars. 67. The Rothman appraisal valued the garage/storage building at $110,000 which is a reasonable value for the structure. 68. William B. Boles valued the stock of Visaggio's as of December 31, 2007. 69. The financial statement for 2007, a value for the unpaid wages allegedly owed to William and Rosemary Lumadue appeared for the first time. 70. The application of the $1.3 million alleged liability for the unpaid wages was central to Mr. Boles' conclusion that the stock was worth nothing. 15 71. Mr. Lumadue testified that he valued the business at between $3 and $5 million. 72. Owners of property are considered experts when testifying as to the property's value. Semasek v. Semasek, 502 A.2d 109, 112 (Pa. 1985). 73. This value is consistent with the value provided to the casualty insurer of : $2,889,000 for buildings (similar to the December 2006 appraisal) and $642,000 for business personal property. VIS 0872 (VIS 0872 is one of the insurance documents submitted post-hearing). 74. Because casualty insurance is carried only on physical structures, to complete the valuation, the value of the land should be added in. 75. The value of the land according to the Noone appraisal is $575,000 and $500,000 according to the Rothman appraisal. 76. The value of Visaggio's assets arrive at by adding the insurance values plus the value of the land ranges from $4,031,000 (using the Rothman land value) to $4,106,000 (using the Noone land value). 77. The liabilities for Visaggio's as of its 2007 financial statement were $1,718,174, giving a net value of $2,312,826 (Rothman land appraisal figure) to $2,387,826 (Noon land appraisal figure). 78. James Smeltzer testified that by using the Rothman appraisal figure, eliminating the $1.3 million contingent liability for the unpaid wages to Mr. and Mrs. Lumadue, and by adding back approximately $112,000 that was excluded by Mr. Boles, the value of a 25% share of Visaggio's would be $225,000. 16 79. The Lumadues' claim for back wages is limited to four years under a breach of contract theory. Haft v. United States Steel Corp., 451 A.2d 445 (Pa.Super. 1981). 80. Applying this limitation, if there is to be a deduction for accrued but unpaid wages to the Lumadues, that amount would be $65,876 (using "Officers' compensation" figures from Ex. 11, VIS 0709) rather than $1,300,000. 81. The value of a 25% share of Visaggio's lies between a floor of $225,000 (using the Boles' appraisal as modified by Mr. Smeltzer) and a ceiling of $596,956.50 (25% of $2,387,826 which is the value using the majority owners' opinion as expressed in testimony and on the insurance documentation). CONCLUSION 82. The value of a 25% share of Visaggio's, Inc., valued immediately before the merger, is $596,965.50 as this amount reflects the majority owners' valuation, unaffected by the deduction of a questionable contingent liability for unpaid wages owed to William and Rosemary Lumadue. 17 Respectfully submitted, METTE, E ANS & WOODSIDE By: KATI L SI SON, E U Sup. t.I.D 28960 3401 North Front Street P. O. Box 5950 Harrisburg, PA 17110-0950 (717) 232-5000 - Phone (717) 236-1816 - Fax Attorneys for Keith A. Shaffer Dated: August 16, 2010 18 CERTIFICATE OF SERVICE The undersigned hereby certifies that a true and correct copy of the foregoing document was served by e-mail and by first class U.S. mail upon the following: James P. DeAngelo, Esquire McNees, Wallace & Nurick, LLC 100 Pine Street P.O. Box 1166 Harrisburg, PA 17108-1166 METTE, FJVANS & WOODSIDE By: KAT SIMPSON, F Sup. t.I. o. 28960 3401 North ront Street P. O. Box 5950 Harrisburg, PA 17110-0950 (717) 232-5000 - Phone (717) 236-1816 - Fax Attorneys for Keith A. Shaffer Dated: August 16, 2010 19 529487vl IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA ~'i~. ~~_+~FFfCE ~r Tr~.~'r~;~T~J~~~jARY IN RE: VISAGGIO'S, INC. PETITION OF KEITH A. SNAPPER, DISSENTING SHAREHOLDER NO.200&2122 nrFa~ r~~#~ " ~ ~~~1 ~• t311 c~~~ r.~ ,~~ ~', t._:~,~. ~U~i s REPORT OF APPRAISER VALUATION OF 25% INTEREST IN SHAREHOLDER VISAGGIO'S, INC. William A. Duncan I.D. No. 22080 billduncan~pa.net DUNCAN & HARTMAN, P.C. 1 Irvine Row Carlisle, PA 17013 (717) 249-7780 i:'iE_F~-OFFICE IN THE COURT OF COMMON PLEAS ~ F T ~~ ~- ~ ~ ~'-~' ~~ ~ ~~ ~ TAR Y OF CUMBERLAND COUNTY, PENNSYLVANIA ~ ;~ ~ ~ 4 ~~~ _ ~ ~, ~ ~ ~~ ; 0 ~ IN RE: VISAGGIO'S, INC. w~ ~ ' ~ `~` L 4`r'~ ~ s I N0.2009-2122 PETITION OF KEITH A. SHAFFER, DISSENTING SHAREHOLDER NOTICE OF FILING OF REPORT OF APPRAISER Kathryn L. Simpson, Esq. METTE, EVANS ~ WOODSIDE 3401 North Front Street P.O. Box 5950 Harrisburg, PA 17110 William A. Duncan, Esq. 1 Irvine Row Carlisle, PA 17013 James P. DeAngelo, Esq. MC NEES WALLACE & NURICK LLC 100 Pine Street P.O. Box 1166 Harrisburg, PA 17108-1166 Enclosed herein please find report of the Appraiser dated October 1, 2010, concerning the valuation of Shaffer's Visaggio's stock. The report shall be filed in the Office of the Prothonotary of the Court of Common Pleas for Cumberland County on November 1, 2010. The report shall become final unless an appeal therefrom is filed within thirty (30) days ftom the date of the report is filed. Appraiser CN~`91~,~ . , William A. Duncan, Appraiser I. PROCEDURAL HISTORY On March 30, 2009, Peririoner Keith A. Shaffer ("Shaffer'? instituted the above- captioned actbn by filing a Petition For Relief Pursuant To 15 Pa.C.S.A. § 1579. Thereafter, on April 17, 2009, Shaffer filed an Amended Petition. On May 5, 2009, Visaggio's filed Preliminary Objections to the Amended Petition. Visaggio's Preliminary Objections were never resolved by the Court. On June 1, 2009, the Court appointed William Duncan, Esquire, as Appraiser in these proceedings, and charged Mr. Duncan with making a recommendation to the Court as to the value of Shaffer's Visaggio's stock. The parties engaged in written discovery, including the exchange of expert reports. No depositions were taken in this matter. On December 24, 2009, Visaggio's submitted its Preheating Memorandum. Shaffer submitted his Preheating Memorandum on December 28, 2009. On January 13 and 14, 2010, and June 4, 2010, hearings in this matter were conducted before Mr. Duncan. Mr. Duncan conducted a view of the Vu;aggio's Real Property on July 27, 2010. II. STATEMENT OF FACTS A. Share Comoositlon of Visaaaio's On August 4, 1980, Visaggio's incorporated under the laws of Pennsylvania and began a restaurant and bar enterprise' kx~ted at 6990 Wertzville Road, Enola, PA 17025 (the "Real Property"). (Amended Petition For Relief Pursuant To 15 Pa.C.S.A. §1579 ("Amended Petition"), ¶ 1; January 14, 2010 Hearing Transcript ("Jan. 14 Transcript"), p. 211). At that rime, Rosemary Lumadue ("Mrs. Lumadue") was President of Visaggio's and Keith A. Shaffer ("Shaffer") was Vices-President. Mrs. Lumadue owned twenty-five percent In 2002, Visaggio's expanded to indude a banquette facility/catering business. (See Visaggio's Ex. 25). (2596) of Visaggio's stock, William Lumadue, Sr. ("Mr. Lumadue") owned twenty-five percent (2596) of Visaggio's stock, and Shaffer owned the remaining fifty percent (5096) of Visaggio's stock. (Jan. 13 Transcript, p. 23; Jan. 14 Transcript, p. 229). Visaggio's stock is not publ'rcaly traded. (June 4 Transcript, p. 342-343). In early 1981, Shaffer sold half of his Visaggio's stock to Mr. Lumadue and Mrs. Lumadue for $5,600. (Jan. 13 Transcript, p. 39; Jan. 14 Transcript, pp. 229-232; Visaggio's Ex. 21). After the Lumadues' acquisition of Shaffer's stock, Mrs. Lumadue owned thirty-seven and half percent (37.596) of the issued Visaggio's stock, Mr. Lumadue owned thirty-seven and half percent (37.5%), and Shaffer owned twenty-five percent (25°~). (Visarggio's Ex. 21; Jan. 14 Transcript, pp. 231-232). Early in the company's history, strong disagnrements arose between the parties, and Shaffer ceased to be activey involved in the operation of Visaggio's. (Jan 13. Transcript, p. 26; Jan. 14 Transcript, pp. 233-236). Further disagreements arose regarding the terms of Shafiers withdrawal from the business; a dispute that was uttimatey resolved by an April 20, 1987 Order of the Superior Court of Pennsylvania. (See Jan. 14 Transcript, pp. 236- 237). The parties have not associated with each other since early 1981; Shaffer, however, remained atwenty-five percent (25%) shareholder in Visaggio's for many years. On November 5, 2008, Visaggio's, Inc. merged with Visaggio's Acquisition, Inc.2 (Amended Petfion, ¶ 7). After the November 2008 merger, Mrs. Lumadue held 250 shares of the issued Visaggio's stock, Mr. Lumadue held 250 shares, and Mr. and Mrs. Lumadue, as husband and wife, held 250 shares. (See B. The V"~asxiio's Real Prooertv z Visa~ggio's Acquisition, Inc. later changed its name to vsaggio's, Inc. For ease of reference, both the former entity and the current entity will be refereed to as "Visaggio's." 2 Visaggio's owns Real Property consisting of 5 acres in Cumberland County, which indudes four improvements: a n~staurant, a banquet facility, a motel, and a storage shed. (Visaggio's Exs. 5, 23; Shaffer Ex. A; Jan. 13 Transcript, pp. 62; see Jan. 14 Transcript, pp. 244, 267; June 4 Transcript, pp. 309-310). The Reai Property does not have public sewer or public water and is not at a signalized intersection. (Shaffer Ex. A; Visaggio's Ex. 23; Jan. 14 Transcript, pp. 170, 249-250; June 4 Transcript, p. 309-311, 327-328). The restaurant, banquet faality, and motel are a single building with a shared heating system. (Jan. 13 Transcript, p. 77; Jan 14. Transcript, pp. 247-248, 267-268; June 4 Transcript, pp. 310, 313). In order to allow service of ak:ohotic beverages, Visaggio's holds a hotel liquor license from the Pennsylvania Liquor Control Board. The hotel license is not marketable to another fadlity per Pennsylvania taquor Control Board (PLCB) regulations. (Jan. 14 Transcript, pp. 219-220). At the time of the merger, the Property was encumbered with $1,559,992 in secured debt. (Visaggio's Exs. 6-7, 9-10, 25; Jan. 14 Transcript, pp. 175, 269-271). The Visaggio's motet has 12 motel units and 4 apartment efficiendes, and is not franchised. (Shaffer Ex. A; V'~saggio's Ex. 23; Jan. 13 Transcript, pp. 73-74; Jan. 14 Transcript, p. 219; June 4 Transcript, pp. 312-313, 325). The motet is in adequate condfion and has few amenities. (V~saggio's Exs. 16, 23; Shaffer Ex. A.; Jan. 13 Transcript, pp. 72- 74; Jan. 14 Transcript, pp. 219, 242-244; June 4 Transcript, pp. 311-312). The Property is operated and maintained by Mr. and Mrs. Lumadue and their dtildren, John Lumadue and Wham Lumadue, Jr. (Jan. 14 Transcript, ~. 210-213, 2i 5- 218, 253-255). Visaggio's employs Mrs. Lumadue, Mr. Lumadue, John Lumadue, and WiNiam Lumadue, Jr. (Jan. 14 Transcript, pp. 179-186, 210-213, 215-218, 253-255). 3 The Lumadue family is responsible for nearly all the duties and obligations attending a restaurant business. Mr. Lumadue cuts wood for heating the facility, maintains the Real Property, oversees the finances, answers the telephone and places reservations, is a bade up bartender, bar bade, is a server for banquet events, Nandscapes, has host duties, sets up menus, and occasionally helps with food preparation, among other things. (Jan. 14 Transcript, pp. 182, 210-213). Mrs. Lumadue's duties at V~saggio's inlude, but are not limited to, cooking, baking, ocCasionaNy leaning the facility, planning and execxting wedding events, planning and executing banquet events, decorating, sewing, planning of the Visaggio's menu, and provides aN the recipes for Visaggio's. (Jan. 14 Transcript, pp. 182-183, 215-218). John Lumadue's duties at Visaggio's inlude, but are not Nmited to, the planning and execution of weddrng events, the planning and execx~tion of banquet events, management of the Visaggio's kitchen, general repairs and maintenance of the Property, payroN, and plumbing. (Jan. 14 Transcr~t, pp. 213, 216-217, 253-255). WtiNam Lumadue Jr.'s duties at V~saggio's include, but are not fnniled to, cooking, general n~pairs and maintenance on the Property, and maintenance of the on site sewage tnratrnent facility (Jan. i 4 Transcript, p. 253). C. The Current Been The Patties On July 2, 2007, Shaffer sent a demand letter ("Demand Letter to Mrs. and Mr. Lumadue seeking twenty (20) years worth of alleged putative dividends. The Demand Letter, however, did not contain an offer to seN Shaffers Visaggio's stock to the Lumadues. Thereafter, on September 18, 2007, Mrs. and Mr. Lumadue offered to redeem Shaffer's sham of V~saggio's stock, an offer that was not responded to by Shaffer. Mr. and Mrs. 4 Lumadue again offered to n~deem Shaffers shares of Visaggio's stock on January 23, 2008. Shaffer declined the offer. On October 22, 2008, a "Notice Of Special Meeting Of Shareholders" (the "Notice") was sent to Shaffer nagarding the November 4, 2008 meeting of Visaggio's shareholders to vote upon the merger of Visaggio's, Inc. into Visaggio's Acquisition, inc. (Amended Pet~ion, ¶ 3). Included in the October 22, 2008 Notice was a proxy statement, which Shaffer returned to Visaggio's indicating that he would vote against the merger. (Id., ¶ 4). On November 4, 2008, the merger between Visaggio's, Inc. and Visaggio's Acquisition, Inc. was approved. (Id., ¶ 6). Upon approval of the merger, a notice was sent to Shaffer pursuant to 15 Pa. C.S.A. §1575 indicating that Shaffer must demand payment for the fair value of his V'~saggio's shares. (Id., ¶ 7). On December 9, 2008, Shaffer demanded the fair value of his shares of ~saggio's stock. (Amended Petition, ¶ 10). In response, corporate counsel for Visaggio's notrfied Shaffer that they bei'ieved his shares to be worth thirty-five thousand dollars ($35,000). (Jan. 13 Transcript, pp. 27, 36; Visaggio's Ex. 14; Amended Petition, ¶ 9). By letter dated January 8, 2009, Shaffer notified Mr. and Mrs. Lumadue that he disagreed, and demanded fNe hundred thousand dollars ($500,000) for his shares of Visaggio's stock. (visaggio's Ex. 13; Jan. 13 Transcript, p. 36; Jan. 14 Transcript, pp. 264-265; Amended Petition, ¶ 10). (Amended Petition, ¶ 10). Shaffer's demand of $500,000 for his 25 percent interest was premised on a value of $2,000,000 for ~saggio's. III. BYNOP818 OF VIBAGGIO'3 ARGUMENT TO APPRAIBER A. Real Property Pursuant to 15 Pa. C.S.A. §1579(d), any dissenter to a merger is entitled to "...recover the amount by which the fair value of his shares is found to exceed the amount, 5 if any, of dividends previously remitted, plus interest." The fair value of a minority shareholders shares must be cak;ulated as of the date of the merger. In re Glosser Brothers. Inc., 555 A.2d 129, 133 (Pa. Super. 1989). Under Pennsylvania law, the fair value of a dissenters shares is determined by evaluating the "going concern" as opposed to the liquidation value. Id., citing 'Connor Ao~eal, 452 Pa. 287, 304 A.2d 694 (1973). In evaluating the "going concern," courts may properly examine the net asset value, actual market value, and investment value of the shares. Id. Further, courts may also consider "market value, asset value, dividends, earning prospects, fie nature of the enterprise and any other facts which were known or which coup be ascertained as of the date of the merger." Id. citing Tri-Continental Cora. v. Battve. 74 A.2d 71, 76 (Del. 1950). "[T]he valuation of property is not an exact science and Q it is the fact finders role to determine the weight to be acxorded an expert's testimony in this area." Cedarbrook Realty. Inc. v. Cheltenham Two., 611 A.2d 335, 340 (Pa. Commw. 1992). However, courts have recognized that the sales comparison approach is a viable and desirable method when evaluating real property. Id.; Bggosian v. Foerderer Tract Comm.. Inc., 399 A.2d 408, 412 (Pa. Super. 1979). 'The basic theory here is that if a similar property located in similar surroundings sold recently at some given price, that price would be relevant in determining the market value of the property being appraised." si n, 399 A.2d at 412. When choosing comparables for the sales comparison approach, consideration should be given to the following factors: size, age, physical condition, location, neighbofiood, extra amenities, date of sale, lot size, style of house, unique features and type of financing. Cedarbrook Real Inc., 611 A.2d at 345. Thus, when utilizing the sales comparison approach, an appraiser must consider similar properties. 6 Further, when evaluating sales comparables for a motel, a court may examine a comparable of a franchised motel versus anon-franchised motel ff the value of the franchise and its impact on the sale price of the motel are separated items. In In re S. Whitehall Two., 394 A.2d 653, 655 (Pa. Commw. 1978), the court stated: On appeal to this Court, the taxpayer alleges the trial court erred as a matter of law in considering the value of another motel, known as Holiday Inn East, in an adjacent county as a "comparable sale,° since the sale also included the transfer of personalty, a state liquor license and a franchise. We find both from a reading of the n3cord of the testimony concerning the sale as well as the opinion of the court below that this contention is without merit. The Township appraiser testified not only as to the total sale price of the other motel but also separated these items not connected with the really in determining the market value of the property... Id. Thus, the actual value of a franchise must be clearly set forth and separated from the underlying value of the motel property. In the current matter, both Shaffer and Visaggio's utilized the sales comparison approach to evaluate the Visaggio's property3. (Shaffer Ex. A; Visaggio's Exs. 5, 18; Jan. 13 Transcript, pp. 74-77; June 4 Transcript, p. 317). Both parties generally agree on the value of the underlying land and the value of the restaurant, garage, and banquet facility. (~ Visaggio's Ex. 18; Shaffer Ex. A). The parties, however, do not agree on the valuation of the motel, which Shaffer valued at $585,000. (Shaffer Ex. A). In his sale comparison evaluation of the Visaggio's motel, William F. Rothman ("Mr. Rothman") utilized three comparables: a Scottish Inn Motel, an Econo Lodge Motel, and a Rodeway Inn. (Shaffer Ex. A, pp. 30-38; Jan 13. Transcript, pp. 7477). Unlike the Visaggio's motel, all three of these comparables have public sewer, public water, and are franchised. (Id.) The Scottish Inn Motel has 31 units, the Econo Lodge Motel has 37 units, 7 and the Rodeway Inn has 43 units. 1( is .) Both the Scottish Inn and the Rodeway Inn offer customers pools, and the Scottish Inn offers cable television, complimentary coffee and tea, and has a refrigerator and microwave in every room. (Shaffer Ex. A). According to Mr. Rothman, the price per unit for the Scottish Inn Motel is $32,484, for the Econo Lodge Motel is $36,008, and for the Rodeway Inn is $36,785. (Jan i 3. Transcript, p. 75-77). Mr. Rothman's chosen comparables do not support his valuation of the Visaggio's motet. When evaluating a property based on the sales comparison approach, the comparisons must be similar in "size, age, physical condition, kx;ation, neighborhood, extra amenities, date of sale, lot size..." Cedarbrook Realty. Inc., 611 A.2d at 345. All three of Mr. Rothman's comparables are larger than the Visaggio's motel, have amenities which the Visaggio's motel does not, are in a better condition than the Visaggio's motel, and are franchised. Furthermore, all three comparables are located in an area more likely to be frequented by off the street customers. The Visaggio's motel has 12 motel units and 4 apartment efficiencies, and is not franchised. (Shaffer Ex. A; Visaggio's Ex. 23; Jan. 13 Transcript, pp. 73-74; Jan. 14 Transcript, p. 219; June 4 Transcript, pp. 312-313, 325). The motel is in adequate condition and has few amenities. (Visaggio's Exs. 16, 23; Shaffer Ex. A.; Jan. 13 Transcript, pp. 72- 73; Jan. 14 Transcript, pp. 219, 242-244; June 4 Transcript, pp. 311-312}. Furthermore, the motel does not even have public water or public sewer. (Shaffer Ex. A; Visaggio's Ex. 23; see Jan. 14 Transcript, pp. 170, 249-250; June 4 Transcript, p. 309). When evaluating the per unit value of a Visaggio's motel unit, Mr. Rothman valued each unit at $36,562, a mere $285 per unit less than the highest adjusted price per unit of his comparables. (Jan. 13 Transcript, p. 77). According to Mr. Rothman, the per unit value 8 of a Visaggio's motel unit is practically the same as that of a Rodeway Inn which has public sewer, publ'~c water, hotel amenities and is franchised. Add'fionally, the Scottish Inn Motel and the Econo Lodge Motel were sold on August 1, 2007 and June 6, 2006, respectively. (Shaffer Ex. A). In the case of the Econo Lodge Motel, the sale of the property occurred over two years before the merger. Both the Econo Lodge Motel and the Scettish Inn Motel were sold prior to the economic crisis that developed in 2008, making these comparables an unreliable indication of what any similar property woukf have sold for in November 2008. Lastly, all three of Mr. Rothman's comparables are franchised enterprises. (Jan 13. Transcript, p. 77). Mr. Rothman did not separate in his report or in his testimony the value of the franchise versus the value of the underlying motel property. B. Authorized but unpaid wanes due and owins~ to Mrs. and Mr. Lumadue By special meeting of the director's of Visaggio's on March 1, 1981, the directors of Visaggio's granted Mr. Lumadue a salary of $30,000 a year and Mrs. Lumadue a salary of $50,000 a year, payable on demand. (Visaggio's Ex. 2; Jan. 14 Transcript, pp. 255-256). Over the years, the Lumadues' authorized salaries have increased pursuant to the Consumer Price Index. (l~C .) However, because Mr. and Mrs. Lumadue did not take their full authorized salaries over a period of nearly 27 years, back salary began to accrue. (Visaggio's Ex. 12; Jan. 14 Transcript, pp. 179-182). Thus, at the time of the merger, Visaggio's owed Mr. and Mrs. Lumadue $1,398,323 in back wages. (Id.) Since 1980, the Lumadues have devoted all their time and efforts into developing the business. The Lumadues have assumed all responsibilities and performed every task necessary to run the restaurant, motel, and banquet facility. (Jan. 14 Transcript, 9 pp. 182-183, 210-213, 215-218). In point of fact, the business of Visaggio's has consumed the Lumadues entire lives and must be considered when valuating Visaggio's stock. (~ June 4 Transcript, pp. 359-361). Visaggio's asserts that the Lumadues' claim for accrued but unpaid wages remains viable and intact under Pennsylvania law, and the Lumadues could, at any time, make a demand for payment against the corporation. Lumadue asserts that the authorized but unpaid wages must be considered when valuing Visaggio's stock. John Lumadue and William Lumadue, Jr. Mr. Boles testified that this obligation has to be considered in valuing the stock of Visaggio's. (June 4 Transcript, pp. 350-352, 365- 366). IV. VISAGGIO'S PROPOSED CONCLUSIONS OP LAW 1. The relevant date of inquiry regarding the value of Shaffer's stock is November 5, 2008, i.e., the date of the merger. In re Giosser Brothers. Inc., 555 A.2d 129, 133 (Pa. Super. 1989). 2. Under Pennsylvania law, the fair value of a dissenter's shares is determined by evaluating the "going concern" as opposed to the liquidation value. In re Glosser Brothers. Inc., 555 A.2d 129, 133 (Pa. Super. 1989), citing O'Connor Ao~eal, 452 Pa. 287, 304 A.2d 694 (1973). 3. In evaluating the "going conoem," courts may properly examine the net asset value, actual market value, and investment value. Id. 4. In evaluating the fair value of a dissenters shares, courts may also consider "market value, asset value, dividends, earning prospects, the nature of the enterprise and any other facts which were known or which could be ascertained as of the date of the merger." I~t .citing Tri-Continental Coru. v. Battvg, 74 A.2d 71, 76 (Del. 1950). 10 5. A minority shareholder discount is not appropriate under the facts of this case, and no such discount was applied by Visaggio's business valuation expert, Mr. William Boles. 6. At the time of the merger, Visaggio's Real Property was valued at $1,550,000. 7. Visaggio's secured debt of $1,599,992 must be deducted from the value of Visaggio's at the merger date. 8. Shaffer has failed to sustain his burden of proving that compensation to the Lumadue family was excessive or unreasonable. Berman v. Meth, 258 A.2d 521, 522 (Pa. 1969); In re Main. Inc., 239 B.R. 281, 293-94 (E.D. Pa. 1999). 9. As of November 5, 2008 Visaggio's stock had no value. V.SYNOPSIS OF 3HAFFER'S ARGUMENT TO APPRAISER Where a dissenting shareholder has made a demand for payment for his or her shares of stock, Pennsylvania law provides that the dissenting shareholder is to be paid the "fair value" of a dissenter's shares of stock. 15Pa.C.S.A. §1571, et seq (the "Pennsylvania Dissenter's Rights Statute"). "Fair value" is defined as "the fair value of shares immediately before the effectuation of the corporate action to which the dissenter objects, taking into account aN relevant factors, but excluding any appreciation or depreciation in anticipation of the corporate action." 15Pa.C.S.A. §1572. The Pennsylvania Dissenter's Rights Statute does not indicate whether there could be an adjustment to the value of the dissenter's share for a minority discount or a marketability discount. A minority discount adjusts for lack of control over the business entity on the theory that non-controlling shares of stock are not worth their proportionate share of the firm's value because they lack voting power to control corporate actions. Lawson Mardon Wheaton v. Smith, 734 A.2d738, 747 (N.J. 1999). A marketability discount adjusts for a lack of liquidity in one's interest in an entity, on the theory that there is a limited supply of potential buyers for a stock in a closely held corporation. Id The Delaware Supreme Court decision in Cavalier Oil Corp. V. Harnett, 564 A.2d 1137 (De1.1989), is considered the leading case regarding discounts. In Cavalier, that Court held that discounts should not be used in determining the "fair value° of a dissenter's share. Since Cavalier Oil, most courts have followed the lead of the Delaware Supreme Court holding that discounts should not be considered in the valuation of dissenters' shares. Brown v. ARP and Hammond Hardware Company,141 P.3d 673, 683 (Wyo. 2006). Adopting the reasoning of Cavalier Oil, no discounts will be applied to the valuation of the 25°~ of Vissagio's stock owned by Mr. Shaffer. The real estate experts testified that the value of the real property owned by Vissagio's ranged from $1,550,000 (Mr. Noone, Visaggio's expert) to $1,900,000 {Mr. Rothman, Mr. Shaffer's expert). An appraisal done for Visaggio's 17 months prior to the effective date of the Noone appraisal valued the real property at $2,876,000. HT 327. The Noone appraisal did not include a value for the garage/storage building. The garage/storage building is being used for the repair/storage of classic cars. The Rothman appraisal valued the garage/storage building at $110,000 which is a reasonable value for the structure. William B. Boles valued the stock of Visaggio's as of December 31, 2007. In the Visaggio's financial statement for 2007, a value for the unpaid wages allegedly owed to William and Rosemary Lumadue appeared for the first time. The application of the $1.3 million alleged liability for the unpaid wages was central to Mr. Boles' conclusion that the stock was worth nothing. Mr. Lumadue testified that he valued the business at between $3 and $5 million. Owners of property are considered experts when testifying as to the property's value. Semasek v. Semasek, 502 A.2d 109, 112 (Pa. 1985). This value is consistent with the value provided to the casualty insurer of $2,889,000 for buildings (similar to the December 2006 appraisal) and $642,000 for business personal properly. VIS 0872 (VIS 0872 is one of the insurance documents submitted post-hearing). Because casualty insurance is carried only on physical structures, to complete the valuation, the value of the land should be added in. The value of the land according to the Noone appraisal is $575,000 and $500,000 according to the Rothman appraisal. The value of Visaggio's assets arrive at by adding the insurance values plus the value of the land ranges from $4,031,000 (using the Rothman land value) to $4,106,000 (using the Noone land value). The liabilities for Visaggio's as of its 2007 financial statement were $1,718,174 giving a net value of $2,312,826 (Rothman land appraisal figure) to $2,387,826 (Noone land appraisal figure)..fames Smeltzer testified that by using the Rothman appraisal figure, eliminating the $1.3 contingent liability for the unpaid wages to Mr. and Mrs. Lumadue, and by adding bads approximately $112,000 that was excluded by Mr. Boles, the value of a 25% share of Visaggio's would be at least $225,000. VI. APPRAISER'S DISCUSSION It is obvious that Shaffer and the Lamadue family should have engaged legal counsel many years ago when it became obvious that Shaffer would no longer be involved in the operation of the business. Although the claim would have involved the same subject matter, i.e. the Twenty-Five Percent (2596) stock interest, the valuation may have been easier to determine and the parties more likely to resolve the matter privately. Pennsylvania law re{avant to this valuation is almost nonexistent and the case law of other jurisdictions does not fall on point with the facts of the case. Without Kenneth Shaffer, his willingness to invest his time, services, labor and money, Visaggio's, Inc. as a business entity may never have come into existence. Nevertheless, without Kenneth Shaffer, Visaggio's has been a successful enterprise, growing in physical size and in reputation as a desirable location for dining, family events and business and group functions. The Lamadue family has been solely responsible for that reputation and success. The Lamadues are no more legally required to participate in the operation of the entity than Mr. Shaffer. In addition to investing their time and talents, the Lamadues have also put themselves at financial risk by entering into debt to finance the facility expansion and acquisition of business equipment necessary to keep the restaurant competitive as the decades passed from the time that Shaffer ceased to be involved in the conduct of the business. Mr. Shaffer had no personal guarantees attached to the restaurant debt. The Appraiser has considered the arguments ably presented by counsel for both parties. The parties were well served and advised by their counsel and the Appraiser is confident that every possible aspect of the matter was presented for consideration. Counsel disclosed the cases which may have been pertinent to this matter and they also admitted to the lack of controlling authority which would mandate the Appraiser to render a decision on funding of the stock valuation according to a specific required formulation. VII. APPRAISER'S FINDINGS 1. Valuation of Real Estate - $1,800,000.00 The hotel rooms and liquor license should be considered but not to the extent promoted by Shaffer's appraiser for the reasons presented by the Lamadues. 2. Business Equipment - $325,000.00 The insurance coverages were considered together with the Appraiser's view of the premises. The equipment is used, readily available, not unique and in some cases, very dated. A Bill of Costs associated with the Appraiser's duties is hereby attached As Exhibit °B°. A file case of legal documents, exhibits, transcripts and all materials submitted to the Appraiser is being deposited with the Prothonotary Office as a supplement to this Report. Respectfully submitted, DUNCAN &HARTMAN, P.C. By. ~--~ William A. Duncan I.D. No. 22080 billduncan(a~pa.net DUNCAN &HARTMAN, P.C. 1 Irvine Row Carlisle, PA 17013 (717) 249-7780 Dated: October 1 , 2010 IN RE: VISAGGIO'S INC. IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA PETITION OF KEITH A. . SHAFFER DISSENTING SHAREHOLDER NO. 09-2122 CIVIL IN RE: PETITION FOR RELIEF PURSUANT TO 15 PA.C.S.A. SECTION 1579 ORDER AND NOW, this !3 day of June, 2009, William Duncan, Esquire, is appointed appraiser to make a recommendation to the court as to the value of the stock. The parties to be billed by the appraiser at his customary hourly rate. BY THE COURT, Michael G. Jarman, Esquire For Visaggio's Inc. Kathryn L. Simpson, Esquire For Keith A. Shaffer William Duncan, Esquire Court-appointed Appraiser :rlm T rMhN~la.111M~ IMF ~iR ~ :mod IIN of said >~1 C~rN11~, ~R: EXHIBIT "B" BILL OF COSTS The Appraiser having performed duties related to his appointment prior to said decision. An invoice ~d Bill of Costs is hereby submitted to the parties for payment in accord with the attached Order of Court marked as Exhibit "A". William A. Duncan, Appraiser 32 days @ $ 250.00 File review; Hearing preparation; Document review; Transcript review; Review of Memos and Briefs, Site Visitation; Legal Research; Preparation of Appraiser's Report; and Related items $ 8,000.00 Mileage 32 x .50 16.00 Postage 16 x .44 7.04 Postage 2 x 1.56 3. 2 Total 8,026.16 TOTAL COSTS OF APPRAISER $ 8,020.88 ~1. ~_ Date: William A. Duncan, Appraiser A IlF~L~~~-~{~ nii ~ t, GY1~U°~~ ~~ t li ~' ~+J r~J~i3Eh~ ~ei~G G l.., r ~,l~?~ ~ _ 3'~~.l~S ~, tP 4,~ 11k Kathryn L. Simpson, Esquire Sup. Ct. I.D. No. 28960 METTE, EVANS & WOODSIDE 3401 North Front Street P. O. Box 5950 Harrisburg, PA 17110-0950 (717) 232-5000 -Telephone (717) 236-1816 -Facsimile klsimpson@mette.com Attorneys for Keith A Shaffer IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA IN RE: VISAGGIO'S, INC. PETITION OF KEITH A. SHAFFER, DISSENTING SHAREHOLDER N0.2009-2122 PETITIONER'S APPEAL FROM REPORT OF APPRAISER Petitioner, Keith A. Shaffer, by his counsel, Mette, Evans & Woodside, files the following appeal from the Report of Appraiser: I. THE APPRAISER ERRED IN MAKING THE FOLLOWING FACTUAL CONCLUSIONS: 1. The Appraiser erred in finding that the value of the business equipment of Visaggio's was $325,000 and using that figure in conjunction with the value of the real estate to calculate the asset value of Visaggio's, Inc. To the contrary, the appropriate valuation for business assets is $487,714 as was set forth by Respondent's expert witness, which constitutes an admission, and used by Petitioner's expert witness in arriving at their respective valuations. 2. The Appraiser erred in failing to include $111,747 in non-operating assets into the calculation of the asset valuation of Visaggio's, Inc., as testified to by the Petitioner's expert witness. 3. Using the correct numbers, as suggested above, and accepting the other real estate valuation and debt as stated by the Appraiser would result in the value of a 100% interest of $799,461 and a 25% interest of $199,865 as opposed to the $131,250 25% value stated by the Appraiser: Value Real Estate Debt Non-operating assets 100% Value 25% interest 487,714 1,800,000 (1,600,000) 111,747 799,461 $199,865 4. The Appraiser erred in not accepting the valuation of Visaggio's, Inc. as testified to by William Lumadue, President of Visaggio's, Inc., of between $3,000,000 and $5,000,000. This statement of value was an admission as to the value of the business thus placing the value of a 25% share at $750,000 to $1,250,000. II. THE APPRAISER ERRED IN FAILING TO APPLY THE LAW TO THE TESTIMONY OF RESPONDENT AND ITS WITNESSES 1. Respondent's President, William Lumadue, testified as to the value of Visaggio's, Inc. 2. His testimony was that the business was worth between $3,000,000 and $5,000,000. 3. This testimony constitutes a judicial admission as to that fact. 2 4. Respondent's expert testified that the appropriate valuation for business assets is $487,714. 5. Statements of fact by one party or in pleadings, stipulations, testimony, and the like, made for that party's benefit, aze termed judicial admissions and aze binding on the party. Coleman v. Wyeth Pharmaceuticals, Inc., 2010 Pa. Super. LEXIS 2629 *55 (Pa. Super. August 30, 2010). 6. Respondent thus set the value of Visaggio's, Inc. by the judicial admission of its President and the value of a 25% share would range from $750,000 to $1,250,000. 7. In the alternative, Respondent set the value of the business assets at $487,714. WHEREFORE, for the above reasons, the valuation reached by the Appraiser should be recalculated using the above to do so. Respectfully submitted, METTE, EVANS & WOODSIDE By: Sup. Ct. I. o. 28960 3401 North Front Street P. O. BOX $950 Harrisburg, PA 17110-0950 (717) 232-5000 -Phone (717) 236-1816 -Fax Attorneys for Keith A. Shaffer Date: October 29, 2010 3 CERTIFICATE OF SERVICE The undersigned hereby certifies that a true and correct copy of the foregoing document was served by first class U.S. mail upon the following: James P. DeAngelo, Esquire McNees, Wallace & Nurick, LLC 100 Pine Street P.O. Box 1166 Harrisburg, PA 17108-1166 William A. Duncan, Esquire 1 Irvine Row Carlisle, PA 17013 METTE, EVANS & WOODSIDE .% ._ ~ % ~ ~ By: Date: October 29, 2010 KAT~I2.YT~ SIMI~SON, F Sup. Ct. I.D. o. 28960 3401 North Front Street P. O. Box 5950 Harrisburg, PA 17110-0950 (? 17} 232-5000 -Phone (717} 236-1816 -Fax Attorneys for Keith A. Shaffer 531937v1 0 IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA IN RE; VISAGGIO'S, INC. NO. 2009-2122 PETITION OF KEITH A. SHAFFER, DISSENTING SHAREHOLDER ORDER OF COURT I? NOV 0 2 2010 AND NOW, this _ b '' day of waif 2010, after consideration of the attached Report of Appraiser, William A. Duncan, 4?y i%J appointment is hereby vacated and the Bill of Costs attached to its Report is ordered to be paid by the parties. d s? } v McNEES WALLACE & NURICK LLC James P. DeAngelo Attorney ID No. 62377 Dana Windisch Chilson Attorney ID No. 208718 100 Pine Street P. O. Box 1166 Harrisburg, PA 17108-1166 (717) 237-5470 (717) 260-1679 facsimile jdeangelCa)_mwn.com QF rye PRa OFFICE C?MB£ 30 pIf z. PFjkS A ? COU, ASIA Attorneys for Visaggio's, Inc. IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA IN RE: VISAGGIO'S, INC. PETITION OF KEITH A. SHAFFER, DISSENTING SHAREHOLDER NO. 2009-2122 VISAGGIO'S. INC.'S EXCEPTIONS TO THE REPORT OF APPRAISER Respondent Visaggio's, Inc. ("Visaggio's"), by and through its attorneys, McNees Wallace & Nurick LLC, hereby submits these exceptions to the November 1, 2010 Report of Appraiser in the above-captioned action, and in support thereof avers as follows: 1. PROCEDURAL HISTORY On March 30, 2009, Petitioner Keith A. Shaffer ("Shaffer") instituted the above-captioned action by filing a Petition for Relief Pursuant to 15 Pa.C.S.A. § 1579. Thereafter, on April 17, 2009, Shaffer filed an Amended Petition. 2. On May 5, 2009, Visaggio's filed Preliminary Objections to the Amended Petition. Visaggio's Preliminary Objections were never resolved by the Court. 3. On June 1, 2009, the Court appointed William Duncan, Esquire ("Mr. Duncan" or the "Appraiser"), as Appraiser in these proceedings, and charged Mr. Duncan with making a recommendation to the Court as to the value of Shaffer's Visaggio's stock. 4. On December 24, 2009, Visaggio's submitted its Prehearing Memorandum. 5. On December 28, 2009, Shaffer submitted his Prehearing Memorandum. 6. On January 13 and 14, 2010, and June 4, 2010, hearings in this matter were conducted before Mr. Duncan. 7. On July 27, 2010, Mr. Duncan conducted a view of the Visaggio's real property (the "Property"). On that same day, Mr. Duncan requested Visaggio's submit its insurance policies to himself and Shaffer. Visaggio's did so on August 5, 2010. 8. On August 6, 2010, Visaggio's submitted its Memorandum of Law, Findings of Fact, and Conclusions of Law. 9. On August 16, 2010, Shaffer filed his Post-Hearing Submission. 10. On November 1, 2010, Mr. Duncan filed with the Court his Report of Appraiser, Valuation of 25% Interest in Shareholder Visaggio's Inc. (the "Appraiser's Report"). II. STATEMENT OF FACTS 11. The facts as developed at the hearings in this matter are set forth in Visaggio's Memorandum of Law and Proposed Findings of Fact, which are incorporated herein by reference as if set forth in full. III. EXCEPTIONS 12. When adopting an appraiser's recommendation on the value of a dissenter's shares pursuant to Pa.R.C.P. No. 1579, the Court must ensure that the appraiser's recommendation is supported by competent and substantial evidence. In re Watt & Shand, 304 A.2d 694, 697 (Pa. 1973). 2 A. The Appraiser Erred by Not Awlyina the Proper Standard for Valuing Shares Pursuant to 15 Pa. C.S.A. $ 1579(d1. 13. In the Appraiser's Report, Mr. Duncan notes that, "Pennsylvania law relevant to this valuation is almost nonexistent and the case law of other jurisdictions does not fall on point with the facts of this case." Appraiser's Report, p. 13. 14. Pursuant to 15 Pa. C.S.A. §1579(d), any dissenter to a merger is entitled to "...recover the amount by which the fair value of his shares is found to exceed the amount, if any, previously remitted, plus interest." 15. Further, both the Pennsylvania Supreme Court and the Pennsylvania Superior Court have analyzed the standard and the factors which must be considered when valuing shares pursuant to 15 Pa. C.S.A. §1579(d). See Watt, 304 A.2d at 694; In re Glosser Brothers, Inc., 555 A.2d 129 (Pa. Super. 1989). 16. In Glosser Brothers, the Court held that the fair value of a minority shareholder's shares must be calculated as of the date of the merger. Glosser Brothers, 555 A.2d at 133. 17. The Glosser Court further held that the fair value of a dissenter's shares is determined by evaluating the "going concern" as opposed to the liquidation value. Id., citing Watt, 304 A.2d at 700. 18. When evaluating the "going concern," courts may properly examine the net asset value, actual market value, and investment value of the shares, as well as "market value, asset value, dividends, earning prospects, the nature of the enterprise and any other facts which were known or which could be ascertained as of the date of the merger." Id. 19. The Appraiser's Report is completely devoid of any analysis of the going concern; rather, the Appraiser used the value of the Property and the value of Visaggio's business equipment as the sole considerations when valuing Shaffer's Visaggio's shares. 3 20. Mr. Duncan did not consider any of the factors laid out by the Glosser Court. 21. The Appraiser erred by not utilizing the proper valuation method for a dissenter's shares under 15 Pa. C.S.A. §1579(d). B. The Appraiser Erred in Findina that Visaaaio's Business Ecauioment had a Value of $325,000. 22. In determining that Visaggio's business equipment had a value of $325,000, Mr. Duncan considered the personal property insurance limits set forth in Visaggio's insurance coverage. Appraiser's Report, p. 14, ¶ 2. He also contends he considered his view of the Property. Id. 23. Importantly, neither Petitioner Shaffer nor Respondent Visaggio's introduced any evidence of the value of the business equipment. This is a particularly important point because the parties each presented testimony from experts in real estate valuation and business valuation. Not one of the testifying valuation experts assigned a value to the used restaurant equipment at Visaggio's. 24. At the view of the Property on July 27, 2010, Mr. Duncan requested Visaggio's produce its insurance policies, a request Visaggio's complied with on August 5, 2010. No testimony regarding Visaggio's insurance coverage was elicited at any hearing in this matter, nor were Visaggio's insurance policies entered into evidence. Visaggio's insurance coverage is not a part of the record in this matter, and thus cannot be considered when valuing Shaffer's shares. Moreover, any attempt to present the insurance limits would not have been proper because they are not evidence of value. 25. An insurance limit is not evidence of value. Even replacement cost limits are not a proper indication of the going concern value, i.e., the fair value of Shaffer's shares. See Kane v. State Farm Fire & Cas. Co., 841 A.2d 1038, 1045 (Pa. Super. 2003). 4 26. The Appraiser erred when he assigned a value to the used restaurant equipment based an insurance limit. 27. Likewise, Shaffer's assertion that Visaggio's expert report sets forth a value of $487,714 for Visaggio's business assets is a mischaracterization of the record. Petitioner's Appeal from Report of Appraiser, $ 1. Rather, the $487,714 figure contained in the Valuation of Common Stock, submitted by Visaggio's as hearing Exhibit 11, is one figure in the calculation of value using the market value of invested capital method where the value is calculated by applying a factor to Visaggio's average sales. The calculation does not provide a value of the used restaurant equipment, and the end result of the calculation is a conclusion that Shaffer's shares have no value. Visaggio's Ex. 11, pp. 48, 68. 28. No testimony was elicited at any hearing in this matter regarding Visaggio's business equipment, nor was any exhibit entered into the record which contains a discussion or analysis of the value of Visaggio's business equipment. 29. The Appraiser's assertion that the Visaggio's business equipment is worth $325,000 is unsupported by the facts of record. 30. Shaffer's assertion that the Visaggio's business equipment is valued at $487,714 is equally unsupported by the facts of record. 31. Furthermore, Mr. Duncan's view of the Property is not and cannot be a part of the record in this matter, as it occurred almost two months after the record closed. Moreover, Mr. Duncan's viewing of the various used restaurant equipment did not and could not give him a basis to value that equipment. 32. The Appraiser erred in assigning a separate value to the used restaurant equipment at Visaggio's. 5 C. The Appraiser Erred in Not Considering the Unfunded Pension Oblination. 33. Mr. Duncan asserts that the unfunded pension obligation to John Lumadue and William Lumadue, Jr. was an "attempt to deprive Shaffer as to the value of his Twenty- Five Percent (25%) interest." See Appraiser's Report, p. 15. 34. During the hearings in this matter, Visaggio's presented testimony and exhibits which established that, as of the merger date (November 5, 2008), Visaggio's had a $560,000 unfunded pension obligation to its non-shareholder management employees, John Lumadue and William Lumadue, Jr. 35. Mr. Boles testified that this obligation has to be considered in valuing the stock of Visaggio's. (June 4 Transcript, pp. 350-352, 365-366). 36. Mr. Smeltzer (Petitioner's business valuation expert) did not contest this in his testimony. 37. No testimony was presented that would lead to the conclusion that the unfunded pension obligation to John Lumadue and William Lumadue, Jr. was an attempt to deprive Shaffer of the value of his Visaggio's stock. In fact, the testimony and exhibits of record plainly reflect this obligation began in 1997 and built up over the following years. The unfunded pension obligation cannot be ignored in valuing Visaggio's. It is a legal obligation of Visaggio's and it must be included in the valuation. 38. Further, Mr. Duncan's assertion that John Lumadue and William Lumadue, Jr. are in the same position as Rosemary Lumadue and William Lumadue, Sr. is untenable, as Rosemary Lumadue and William Lumadue, Sr. are management employees who hold an equity interest in the corporation; John Lumadue and William Lumadue, Jr. are non- shareholder management employees. 6 39. Mr. Duncan's failure to include the unfunded pension obligation in his determination of the value of Shaffer's shares is not supported by competent and substantial evidence; indeed, Mr. Duncan's conclusion regarding the pension obligation to John Lumadue and William Lumadue, Jr. is contrary to the evidence of record. D. The Appraiser Erred in Not Considerina the Authorized but Unpaid Wanes to Mr. and Mrs. Lumadue. 40. Mr. Duncan asserts that the authorized but unpaid wages due and owing to Mr. and Mrs. Lumadue are an "attempt to deprive Shaffer as to the value of his Twenty-Five Percent (25%) interest." Appraiser's Report, p. 15. 41. Shaffer's own expert testified that there were only two reasons that the authorized but unpaid wages should not be considered: (1) the wages were not quantified in Visaggio's financial statements or the wages as quantified do not add up to $1,300,000; and (2) the wages authorized to the Lumadues are unreasonable. (Jan. 13 Transcript, pp. 109- 124). 42. Shaffer presented no evidence that could lead to the conclusion that the authorized but unpaid wages to the Lumadues were created to deprive Shaffer of the value of his shares. 43. Visaggio's, however, presented competent evidence that the payment obligation was created in 1981 via a March 1, 1981 special meeting of the directors, over twenty-seven (27) years before the merger took place. (Visaggio's Ex. 2; Jan. 14 Transcript, pp. 255-256). 44. Visaggio's evidence documents that the wages were quantified and were reasonable. This is outlined in Visaggio's Memorandum of Law submitted to the Appraiser at pages 12-14. 7 45. As such, Mr. Duncan's failure to include the authorized but unpaid wages in his determination of the value of Shaffer's shares is not supported by competent and substantial evidence. WHEREFORE, Visaggio's, Inc. respectfully requests that the Report of the Appraiser not be adopted, and that the value of Keith A. Shaffer's Visaggio's shares be calculated as set forth in Visaggio's, Inc.'s Memorandum of Law. McNEES ALLACE & NURICK LLC By James P. DeAngelo I.D. No. 62377 jdeangelo@mwn.com Dana Windisch Chilson I.D. No. 208718 dchilson@mwn.com 100 Pine Street P.O. Box 1166 Harrisburg, PA 17108-1166 (717) 232-8000 Dated: November 30, 2010 Attorneys for Respondent 8 CERTIFICATE OF SERVICE The undersigned hereby certifies that on this date a true and correct copy of the foregoing document was served by first class U.S. mail upon the following: Kathryn Simpson, Esq. Mette, Evans & Woodside 3401 North Front Street P.O. Box 5950 Harrisburg, PA 17110 Dana Windisch Chilson Attorneys for Visaggio's Inc. Dated: November 30, 2010 F:\FILES\Clients\14983 Shaffer\14983.1.Praecipe to enter appearance.wpd -V a Created: 9/20/04 0:06PM Revised: 9/16/13 9:57AM !Y7 W. FT-1 Hubert X. Gilroy, Esquire } MARTSON DEARDORFF WILLIAMS OTTO GILROY & FALLER -v -71 MARTSON LAW OFFICES 't'e-; I.D. 29943 > �: fir 10 East High Street — I` Carlisle, PA 17013 (717) 243-3341 Attorneys for IN RE: VISSAGIO's, INC., : IN THE COURT OF COMMON PLEAS : CUMBERLAND COUNTY, PENNSYLVANIA PETITION OF KEITH A. SHAFFER, : CIVIL ACTION—LAW DISSENTING SHAREHOLDER : NO. 2009-2122 PRAECIPE TO THE PROTHONOTARY OF CUMBERLAND COUNTY: Please withdraw the appearance of METTE EVANS & WOODSIDE and Kathryn L. Simpson, Esquire as attorney for Keith A. Shaffer. Dated: ( , 2013 . ,' Kate n L. i pson, Esquire ID• 28960 Mette Evans : Woodside 3401 North Front Street P.O. Box 5950 Harrisburg, PA 17110-0950 (717) 232-5000 Please enter the appearance of MARTSON LAW OFFICES and Hubert X. Gilroy, Esquire as attorney for Keith A. Shaffer. Dated: reivr- 3 d , 2013 g)/- Hubert X. ilroy, Esquire ID #29943 Martson Law Offices 10 East High Street Carlisle, PA 17013 (717) 243-3341 ID #29943 PRAECIPE FOR LISTING CASE FOR ARGUMENT (Must be typewritten and submitted in triplicate) TO THE PROTHONOTARY OF CUMBERLAND COUNTY: Argument Court.) CAPTION OF CASE (entire caption must be stated in full) IN RE: VISSAGIO'S vs. et Cr7 (List the within matter for tl next` - f` 1 r:J -r No. 2122 2009 Term 1. State matter to be argued (i.e., plaintiffs motion for new trial, defendant's demurrer to complaint, etc.): Vissagio's Exceptions to the Report of Appraiser 2. Identify all counsel who will argue cases: (a) for plaintiffs: Hubert X. Gilroy, Esquire, 10 East High Street, Carlisle, PA 17013 (Name and Address) James P. DeAngelo, Esquire, 100 Pine St., P.O. Box 1166, Harrisburg, PA 17106 (b) for defendants: (Name and Address) 3. I will notify all parties in writing within two days that this case has been listed for argument. 4. Argument Court Date: May 9, 2014 Date: ith/ig nature Hubert Gilroy Print your n -me Keith Shaffer Attorney for INSTRUCTIONS: 1. Original and two copies of all briefs must be filed with the COURT ADMINISTRATOR (not the Prothonotary) before argument. 2. The moving party shall file and serve their brief 14 days prior to argument. 3. The responding party shall file their brief 7 days prior to argument. 4. If argument is continued new briefs must be filed with the COURT ADMINISTRATOR (not the Prothonotary) after the case is relisted. /9, GI • a4 3e /66, • IN RE: VISAGGIO'S INC. IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA PETITION OF KEITH A. SHAFFER DISSENTING SHAREHOLDER NO. 09-2122 CIVIL IN RE: PRELIMINARY OBJECTIONS AND EXCEPTIONS TO THE REPORT OF APPRAISER ORDER AND NOW, this 'Z t►' day of June, 2014,argument on the captioned matters is set for Thursday, August 14, 2014, at 11:00 a.m. A brief in support of the preliminary objections lodged in this case will be filed on or before the close of business on Friday, August 1, 2014. A response brief on the matter of preliminary objections and the briefs of both parties with regard to their exceptions to the appraiser's report will be filed on or before the close of business on August 11, 2014, BY THE COURT, SA. Kevin less, J. ✓ James DeAngelo, Esquire For Visaggio's Inc. Hubert X. Gilroy, Esquire For Keith A. Shaffer ' :rlm IN RE: VISAGGIO'S INC. : IN THE COURT OF COMMON PLEAS OF : CUMBERLAND COUNTY, PENNSYLVANIA PETITION OF KEITH A. SHAFFER DISSENTING SHAREHOLDER NO. 09-2122 CIVIL IN RE: PRELIMINARY OBJECTIONS OF RESPONDENTS ORDER AND NOW, this ` day of September, 2014, the preliminary objections of the respondents are OVERRULED with the exception that the preliminary objection to service is SUSTAINED and improper service in this case is set aside. This order is entered without prejudice to the petitioner to cure the deficiency in service of original process. Following service, the parties shall notify the Court, by filed stipulation or otherwise, that the matter is ripe for disposition on the merits. aures DeAngelo, Esquire 100 Pine Street P. O. Box 1166 Harrisburg, PA 17108-1166 For Visaggio's Inc. / ubert X. Gilroy, Esquire 10 East High Street Carlisle, PA 17013 For Keith A. Shaffer :rim BY THE COURT, Hubert X. Gilroy, Esquire I.D. 29943 Katie J. Maxwell, Esquire I.D. No. 206018 MARTSON DEARDORFF WILLIAMS OTTO MARTSON LAW OFFICES 10 East High Street Carlisle, PA 17013 (717) 243-3341 Attorneys for Petitioner L I i ,.€ HEwPPOTHOHO 1i,J;) ?OI SEP 19 AI4Ii:35 CUMBERLAND COUNTY PENNSYLVANIA GILROY & FALLER IN RE: VISAGGIO'S, INC., v. . IN THE COURT OF COMMON PLEAS . CUMBERLAND COUNTY, PA • . NO. 2009-2122 PETITION OF KEITH A. SHAFFER, : DISSENTING SHAREHOLDER CIVIL ACTION - LAW ATTORNEY'S ACCEPTANCE OF SERVICE We, James P. DeAngelo, Esquire and Dana W. Chilson, Esquire, attorneys for Vissagio's, Inc. in the above -captioned action, having been authorized by our client to do so, hereby accept service of the Petitioner's Amended Petition for Relief Pursuant to 15 Pa. C.S.A. § 1579 as of May 6, 2009. McNEES WALLACE & NURICK By: Date: September 16, 2014 James P. DeAngelo, Esquire Pa. I.D. No. 62377 Dana W. Chilson Pa. I.D. No. 208718 100 Pine Street P.O. Box 1166 Harrisburg, PA 17101-1507 (717) 237-5470 Attorneys for Vissagio's, Inc. IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA IN RE: VISAGGIO'S, INC. NO. 2009-2122 PETITION OF KEITH A. SHAFFER, DISSENTING SHAREHOLDER O FILEDFiCF THE PROTHONO TAR '1. 2014 SEP 24 PH 1: 37 CUMBERLAND PENNSYLVANIA STIPULATION Pursuant to the Order of Court dated September 4, 2014, Respondent Visaggio's, Inc. ("Visaggio's") and Petitioner Keith A. Shaffer ("Shaffer") hereby submit the following Stipulation: 1. On or about September 16, 2014, counsel for Visaggio's accepted service of Shaffer's Petition for Relief Pursuant to 15 Pa. C.S.A. § 1579, effective as of May 6, 2009. 2. Visaggio's and Shaffer agree that the hearings conducted before William Duncan on January 13 and 14, 2010 and June 4, 2010 have created the record upon which this Court may determine the merits of each parties' respective Exceptions to Mr. Duncan's Report of Appraiser dated October 1, 2010. 3. The parties' respective Exceptions to Mr. Duncan's Report of Appraiser are ripe for disposition. McNEE WALLACE & NURICK LLC By James P. DeAngelo Attorney ID No. 62377 Dana W. Chilson Attorney ID No. 208718 100 Pine Street P. 0. Box 1166 Harrisburg, PA 17108-1166 (717) 232-8000 Dated: September 23, 2014 Attorneys for Visaggio's Inc. MARTSON LAW OFFICES By Hubert X. oy Attorney IlYNo. 29943 Katie J. Maxwell Attorney ID No. 206018 10 East High Street Carlisle, PA 17013 (717) 243-3341 Dated: September 2014 Attorneys for Keith A. Shaffer 2 CERTIFICATE OF SERVICE The undersigned hereby certifies that a true and correct copy of the foregoing document was served by first class U.S. mail, postage pre -paid upon the following: Hubert X. Gilroy, Esq. Katie J. Maxwell, Esq. Martson Law Offices A Professional Corporation Ten East High Street Carlisle, PA 17013 Dana W. Chilson Attorneys for Visaggio's Inc. Dated: September 23, 2014 IN RE: VISAGGIO'S, INC. : IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA PETITION OF KEITH A. SHAFFER, DISSENTING SHAREHOLDER : NO. 2009-2122 CIVIL IN RE: PETITIONER'S APPEAL FROM REPORT OF APPRAISER BEFORE HESS, P.J. ORDER AND NOW, this 1°- day of October, 2014, after consideration of Petitioner's Appeal from the Report of the Appraiser and Respondent's Exceptions to the Report of the Appraiser, the Appraiser's Report is hereby ADOPTED. The value of Visaggio's at the time of merger was $525,000; Petitioner Keith Shaffer's 25% share is $131,250. BY THE COURT: Kevi Hess, P.J. Vrames P. DeAngelo, Esquire Dana W. Chilson, Esquire For Visaggio's, Inc. Xibert X. Gilroy, Esquire Katie J. Maxwell, Esquire For Keith A. Shaffer :rlm CO 'es 172.ai'1Ect- r 0 acy/t/ C") • • C.J1 IN RE: VISAGGIO'S, INC. : IN THE COURT OF COMMON PLEAS OF : CUMBERLAND COUNTY, PENNSYLVANIA PETITION OF KEITH A. SHAFFER, DISSENTING SHAREHOLDER : NO. 2009-2122 CIVIL IN RE: PETITIONER'S APPEAL FROM REPORT OF APPRAISER BEFORE HESS, P.J. OPINION AND ORDER Respondent Visaggio's, Inc. (Visaggio's) was a corporation incorporated under the laws of Pennsylvania in 1980. (Visaggio's Proposed Findings of Fact, 1, filed August 16, 2010 (Hereinafter "Prop. Facts at _")). At formation, Visaggio's had three shareholders: Rosemary Lumadue who held 25% of Visaggio's shares, William Lumadue who held 25% of Visaggio's shares, and Petitioner, Keith Shaffer, who held 50% of Visaggio's shares. Id. In 1981, Petitioner sold half of his interest in Visaggio's to the Lumadues, thereby resulting in Mr. and Mrs. Lumadue holding 37.5% each and Mr. Shaffer holding 25% of Visaggio's. Id. In 1981, due to disagreements between the Lumadues and Mr. Shaffer, Mr. Shaffer ended participation in the business, but retained his 25% ownership interest. (Report of Appraiser Valuation of 25% Interest in Shareholder Visaggio's, Inc., 2, filed November 1, 2010 (Hereinafter "Report at _")). The situation remained as it was until 2008, when Mr. Shaffer was notified of an impending shareholder's meeting to consider a merger of Visaggio's with and into Visaggio's Acquisition, Inc. (Acquisition). (Petitioner's Post -Hearing Submission, 3, filed August 16, 2010 (Hereinafter "Post -Hearing at _")). Mr. Shaffer received a proxy statement, which he returned indicating that he would be voting against the merger. Id. A meeting was held in 2008 and the merger was approved. Id. Pursuant to 15 Pa.C.S.A. § 1575, a notice was mailed to Mr. Shaffer informing him that as a dissenting shareholder he is entitled to demand payment for the fair value of his stock. Id. Mr. Shaffer made such a demand, to which Visaggio's estimated Mr. Shaffer's ownership interest to have a fair value of $35,000. Id. Mr. Shaffer refused the offer, believing his shares to be worth $500,000, which was subsequently refused by Visaggio's (Post- Hearing at 3-4). Mr. Shaffer then filed the instant action under 15 Pa.C.S.A. § 1579 on April 17, 2009. Id. At the time of merger, Visaggio's real property consisted of 5 acres of land and other improvements such as the restaurant, hotel, garage, and banquet facilities. (Report at 3). The hotel was not franchised and lacked various amenities as well as connection to water and sewer services. Id. The restaurant had various pieces of equipment related to the business. Id. An action having been filed under 15 Pa.C.S.A. § 1579, this court appointed the services of a statutorily-permitted appraiser to conduct the valuation of Visaggio's. (Visaggio's Memorandum of Law, 1, filed August 16, 2010 (Hereinafter "Memorandum at _")). Following the filing of cross pre-hearing memoranda, hearings before the appraiser, and consideration of post-hearing memoranda, the appraiser filed his report on November 1, 2010. Id. Petitioner then filed an appeal from the report of the appraiser, citing both factual and legal errors. (Petitioner's Appeal from Report of Appraiser, 1-2, filed November 1, 2010 (Hereinafter "Appeal at _")). Over three and a half years later, Visaggio's filed their exceptions to the report of the appraiser, also alleging both factual and legal errors. (Visaggio's, Inc.'s Exceptions to the Report of Appraiser, 3-7, filed May 20, 2014 (Hereinafter "Exceptions at _")). Subsequently, it 2 was determined that a preliminary objection in the form of insufficient service remained outstanding, raising the question of whether the Court had jurisdiction over the matter. See Collins v. Park, 621 A.2d 996, 997 (Pa. Super. Ct. 1993) ("Proper service is a prerequisite to the court's jurisdiction over the person of a defendant."). We sustained the preliminary objection. Following proper service, the parties stipulated that the actions of the Court until that point, assigning an appraiser who held hearings and filed a report, would stand as the record rather than repeat the process which would only further delay the matter and increase costs. In summation, the appraiser has heard the evidence and filed his report and both parties have filed their exceptions and/or appeal arguing against the adoption of the report. The Court must now determine whether the report should be adopted or, in the alternative, whether it should adopt one of the parties' valuation or its own valuation. When adopting an appraiser's recommendation on the value of a dissenter's shares pursuant to 15 Pa.C.S.A. § 1579, the Court must ensure that the appraiser's recommendation is supported by competent and substantial evidence. In re Watt & Shand, 304 A.2d 694, 697 (Pa. 1973). Further, "substantial evidence is more than a scintilla. It means such relevant evidence as a reasonable mind might accept as adequate to support a conclusion." In re Glosser Brothers, Inc., 555 A.2d 129, 132 (Pa. Super Ct. 1989). Nonetheless, we should be mindful that "[t]he questions involved (in a dissenting shareholder's appraisal suit) are rather economic than legal in character.... Such standards can better be derived by consulting the business man, the banker, and the industrial engineer, than the jurist, legal scholar, or lawyer." In re Watt & Shand, 3 283 A.2d 279, 280-81 (1971). Impliedly therefore, deference should be given to the Appraiser, having been appointed by this Court for the purpose of economic evaluation. With that standard in mind, the Appraiser's findings are exceptionally simple to declare. The Appraiser found that Visaggio's real estate valuation totaled $1,800,000, less a debt of $1,600,000, while the business equipment totaled $325,000. (Report at 14). This determination included the following for the real estate valuation, "[t]he hotel rooms and liquor license should be considered but not to the extent promoted by Shaffer's appraiser for the reasons presented by the Lamadues [sic]." Id. Further, the Appraiser indicated that for the equipment value, "insurance coverages were considered together with the Appraiser's view of the premises. The equipment is used, readily available, not unique and in some cases, very dated." Id. The total valuation of Visaggio's, Inc. at the time of merger was therefore $525,000, making Petitioner's 25% share worth $131,250. Both parties have asserted that the Appraiser factually erred in his valuation. Specifically Visaggio's has alleged that the Appraiser failed to consider the outstanding debts owed by the corporation, (Exceptions at 6-7), while Petitioner has alleged that the Appraiser ignored admissions made by the corporation as to the overall value of the corporation, the available capital of the corporation, and the value of the business assets, (Appeal at 1-2). Further, both parties have alleged an error in law due to the failure by the Appraiser to properly apply the correct legal standard. Visaggio's argues that the Appraiser erred by failing to properly evaluate the value of the corporation at the time of the merger based on the "going concern" articulated in Glosser Brothers. (Exceptions 4 at 3-4). Conversely, Petitioner argues that testimony of the opposing party constitutes an admission and is therefore factually binding upon that party. (Appeal at 3) (citing Coleman v. Wyeth Pharmaceuticals, Inc., 6 A.3d 502, 524 (Pa. Super. Ct. 2010)). Neither party therefore wishes the Court to adopt the Appraiser's Report as it was presented. To that end, Visaggio's continues to maintain that the value of the corporation based on the going concern as of the date of merger was $0 due to the value of the property, standing debt, back pay owed to Mr. and Mrs. Lumadue upon demand, and unpaid pension fund for non -shareholder management employees. (Exceptions at 6-8). This would indicate that Petitioner's 25% share would also be $0. Petitioner, meanwhile, argues that the value of the corporation should either be $799,461 or "between $3,000,000 and $5,000,000" based on admissions by a representative of Visaggio's. (Appeal at 2). This would provide Petitioner's 25% share as either $199,865 or $750,000 to $1,250,000, respectively. The chart below outlines the various parties' stances in summation: In rejecting the parties' argument, we need not conclude that the Appraiser was correct to a mathematical certainty. Instead, the only determination that needs to be made is whether the Appraiser's Report is supported by substantial and competent evidence, with deference given to the Appraiser as the duly appointed representative of the court. We will evaluate the arguments of the parties with this standard in mind. 5 Appraiser Visaggio's Petitioner Petitioner (Alternative) Total Real Property $1,800,000 $1,550,000 $1,800,000 - Equipment $325,000 $0 $187,714 Misc. Cash - $0 $111,747 - Debt $1,600,000 $3,560,000 $1,600,000 - Total Value $525,000 $0 $799,461 $2,000,000-$5,000,000 25% Interest $131,250 $0 $199,865 $750,000-$1,250,000 In rejecting the parties' argument, we need not conclude that the Appraiser was correct to a mathematical certainty. Instead, the only determination that needs to be made is whether the Appraiser's Report is supported by substantial and competent evidence, with deference given to the Appraiser as the duly appointed representative of the court. We will evaluate the arguments of the parties with this standard in mind. 5 The Appraiser indicated that he based his valuation of Visaggio's real property on the basis of the testimony provided by the parties. Specifically, the Appraiser took into account the value of the hotel as an unfranchised, bare -amenity establishment which included a liquor license. Meanwhile, it was uncontroverted that Visaggio's has approximately $1,600,000 in secured debt on the real property. The Appraiser also utilized the testimony and evidence to value the business equipment present, in addition to his own observation of the premises. The Appraiser acknowledged the fact that the equipment was in less than ideal condition and not unique in nature, but concluded that the equipment has value. Visaggio's contends that the visual inspection by the Appraiser was not done at the time of the merger and therefore is not valid. There is no indication in the record however that the property and equipment viewed by the Appraiser was in any worse or better condition at the time of the merger than it was at the time the Appraiser viewed it. Visaggio's additionally claims that the Appraiser failed to consider both the pension fund and back pay. However, the Appraiser noted that the back pay did not appear under Visaggio's reports until 2007, only one year prior to the merger proposal. Obviously the Appraiser considered this evidence; however it is equally clear that he did not believe it to be substantial enough to integrate into his calculations. Petitioner meanwhile asserts that the Appraiser improperly determined the value of the business equipment by failing to follow an admission by Visaggio's expert witness. The Appraiser stated he used the insurance values as the basis and then his own observations that the equipment was "used, readily available, not unique and in 6 some cases, very dated," to reduce the value appropriately. We are satisfied that the value of the restaurant equipment is based on competent evidence. In the alternative, Petitioner is asserting that the Appraiser failed to properly accept Visaggio's admission that the business is worth between $3,000,000 and $5,000,000. Petitioner would have us determine the value of a company based on the wishful thinking of the president of the corporation to the exclusion of all of the testimony provided by both parties' expert witnesses and the Appraiser's conclusion. We will not do so. Instead, we note that the conclusions of the Appraiser bear a reasonable relationship to the values established by the parties' experts and is clearly supported by substantial evidence. For the foregoing reasons, the Appraiser's Report is adopted. The value of Visaggio's at the time of merger is deemed to be $525,000, with Petitioner's 25% interest having a value of $131,250. ORDER AND NOW, this Zn` day of October, 2014, after consideration of Petitioner's Appeal from the Report of the Appraiser and Respondent's Exceptions to the Report of the Appraiser, the Appraiser's Report is hereby ADOPTED. The value of Visaggio's at the time of merger was $525,000; Petitioner Keith Shaffer's 25% share is $131,250. BY THE COURT: Kevin . Hess, P.J. McNEES WALLACE & NURICK LLC James P. DeAngelo Attorney ID No. 62377 Dana Windisch Chilson Attorney ID No. 208718 100 Pine Street P. 0. Box 1166 Harrisburg, PA 17108-1166 (717) 237-5470 (717) 260-1679 facsimile idearmelmwn.com Attorneys for Visaggio's, Inc. LED-OFFIC:' Cif THE PROTHONOTAR 2014 OCT 30 PM 2: 32 CUMBERLAND COUNTY PENNSYLVANIA IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA IN RE: VISAGGIO'S, INC. NO. 2009-2122 PETITION OF KEITH A. SHAFFER, DISSENTING SHAREHOLDER VISAGGIO'S, INC.'S MOTION FOR RECONSIDERATION Respondent Visaggio's, Inc. ("Visaggio's"), by and through its attorneys, McNees Wallace & Nurick LLC, hereby moves the Court for reconsideration of its Order and Opinion dated October 20, 2014, and in support thereof avers as follows: RELEVANT PROCEDURAL HISTORY 1. On March 30, 2009, Petitioner Keith A. Shaffer ("Shaffer") instituted this action by filing a Petition for Relief Pursuant to 15 Pa. C.S. § 1579. 2. Thereafter, on April 17, 2009, Shaffer filed an Amended Petition. 3. On June 1, 2009, the Court appointed William Duncan, Esquire ("Mr. Duncan" or the "Appraiser"), as Appraiser in these proceedings, and charged Mr. Duncan with making a recommendation to the Court as to the value of Shaffer's Visaggio's stock. 4. On January 13 and 14, 2010, and June 4, 2010, hearings in this matter were conducted before Mr. Duncan. 5. On July 27, 2010, nearly two months after the hearing record was closed, Mr. Duncan conducted a view of the Visaggio's real property (the "Property"). 6. On that same day, Mr. Duncan directed Visaggio's to submit its insurance policies to himself and Shaffer; Visaggio's did so on August 5, 2010. 7. On August 6, 2010, Visaggio's submitted its Memorandum of Law, Findings of Fact, and Conclusions of Law. 8. On August 16, 2010, Shaffer filed his Post -Hearing Submission. 9. On November 1, 2010, Mr. Duncan filed with the Court his Report of Appraiser, Valuation of 25% Interest in Shareholder Visaggio's Inc. (the "Appraiser's Report"). 10. On November 30, 2010, Visaggio's filed its Exceptions to the Report of Appraiser.1 11. On June 25, 2014, the Court issued an Order setting a briefing schedule for the parties' exceptions to the Appraiser's report. 12. On October 20, 2014, the Court issued its Order and Opinion overruling both parties' exceptions and adopting the Appraiser's report. In its Opinion dated October 20, 2014, the Court stated that Visaggio's did not file its Exceptions until more than three and one-half years after the Appraiser's report was filed. See Opinion at 2. As evidenced by the November 30, 2010 date stamp of the Prothonotary, however, the Court's statement is incorrect. Visaggio's timely filed its Exceptions less than thirty days after the filing of the Appraiser's report. 2 The Court Should Not Have Adopted the Appraiser's Report, Because The Appraiser Manifestly Erred in Findinq that Visaqqio's Business Equipment had a Value of $325,000. 13. In determining that Visaggio's business equipment had a value of $325,000, Mr. Duncan considered the personal property insurance limits set forth in Visaggio's insurance coverage. Appraiser's Report, p. 14, ¶ 2. 14. Mr. Duncan also considered his view of the Property. Id. 15. At the view of the Property on July 27, 2010, Mr. Duncan requested Visaggio's produce its insurance policies, a request Visaggio's complied with on August 5, 2010. 16. At the time of the view and request for insurance policies, the record had already been closed for nearly two months. 17. No testimony regarding Visaggio's insurance coverage was elicited at any hearing in this matter, nor were Visaggio's insurance policies entered into evidence. 18. Visaggio's insurance coverage was not a part of the record in this matter, and thus could not be considered when valuing Shaffer's shares. 19. Moreover, any attempt to present the insurance limits would not have been proper because they are not evidence of value. An insurance limit is not evidence of value; even replacement cost limits are not a proper indication of the going concern value, i.e., the fair value of Shaffer's shares. See Kane v. State Farm Fire & Cas. Co., 841 A.2d 1038, 1045 (Pa. Super. 2003). 20. In his exceptions to the Appraiser's report, Shaffer conceded that the use of Visaggio's insurance limits was not an appropriate method to value the Visaggio's business equipment. 3 21. Therefore, the Appraiser erred when he assigned a value to the used restaurant equipment based on insurance limit. 22. No testimony was elicited at any hearing in this matter regarding Visaggio's business equipment, nor was any exhibit entered into the record which contains a discussion or analysis of the value of Visaggio's business equipment. 23. The Appraiser's assertion that the Visaggio's business equipment is worth $325,000 is unsupported by the facts of record. 24. Further, Mr. Duncan's view of the Property is not and cannot be a part of the record in this matter, as it occurred almost two months after the record closed. 25. Moreover, Mr. Duncan's viewing of the various used restaurant equipment did not and could not give him a basis to value that equipment. 26. The Appraiser erred in assigning a separate value to the used restaurant equipment at Visaggio's. 27. The Appraiser's errors in valuing the equipment are plain on the face of his report. 28. Therefore, the Court erred as a matter of law in adopting the report. The Court Should Not Have Adopted the Appraiser's Report, Because The Appraiser Manifestly Erred in Not Considering the Unfunded Pension Obligation. 29. Mr. Duncan's report stated that the unfunded pension obligation to John Lumadue and William Lumadue, Jr. was an "attempt to deprive Shaffer as to the value of his Twenty -Five Percent (25%) interest." See Appraiser's Report, p. 15. 30. During the hearings in this matter, Visaggio's presented testimony and exhibits which established that, as of the merger date of November 5, 2008, the date 4 that must be used for valuing the business, Visaggio's had a $560,000 unfunded pension obligation to its non -shareholder management employees, John Lumadue and William Lumadue, Jr. 31. Visaggio's expert testified that this obligation has to be considered in valuing the stock of Visaggio's (June 4 Transcript, pp. 350-352, 365-366), and Shaffer's expert did not contest that. 32. No testimony or other evidence whatsoever was presented that would support the Appraiser's bare conclusion that the unfunded pension obligation to John Lumadue and William Lumadue, Jr. was an attempt to deprive Shaffer of the value of his Visaggio's stock. 33. In fact, the testimony and exhibits of record plainly reflect this obligation began in 1997 and built up over the subsequent years. 34. The unfunded pension obligation cannot be ignored in valuing Visaggio's; it is a legal obligation of Visaggio's and it must be included in the valuation. 35. Further, Mr. Duncan's assertion that John Lumadue and William Lumadue, Jr. are in the same position as Rosemary Lumadue and William Lumadue, Sr. is untenable, as Rosemary Lumadue and William Lumadue, Sr. are management employees who hold an equity interest in the corporation; John Lumadue and William Lumadue, Jr. are non -shareholder management employees. 36. Mr. Duncan's failure to include the unfunded pension obligation in his determination of the value of Shaffer's shares is not supported by competent and substantial evidence; indeed, Mr. Duncan's conclusion regarding the pension obligation to John Lumadue and William Lumadue, Jr. is contrary to the evidence of record. 5 37. Mr. Duncan's failure to include the unfunded pension obligation in his determination of the value of Shaffer's shares is not supported by applicable law. 38. Mr. Duncan's error in failing to include the unfunded pension obligation is plain on the face of his report. 39. Therefore, the Court erred as a matter of law in adopting the report. The Court Should Not Have Adopted the Appraiser's Report, Because The Appraiser Manifestly Erred in Not Considering the Authorized but Unpaid Wages to Mr. and Mrs. Lumadue. 40. Mr. Duncan's report stated that the authorized but unpaid wages due and owing to Mr. and Mrs. Lumadue were an "attempt to deprive Shaffer as to the value of his Twenty -Five Percent (25%) interest." Appraiser's Report, p. 15. 41. However, Shaffer's own expert conceded that there were only two reasons that might support refusing to consider the authorized but unpaid wages: (1) if the wages were not quantified in Visaggio's financial statements or the wages as quantified did not add up to $1,300,000; or (2) if the wages authorized to the Lumadues were unreasonable. (Jan. 13 Transcript, pp. 109-124). 42. Shaffer presented no evidence to support the Appraiser's conclusion that the authorized but unpaid wages to the Lumadues were created to deprive Shaffer of the value of his shares. 43. By contrast, Visaggio's presented competent evidence that the payment obligation was created in 1981 via a March 1, 1981 special meeting of the directors, over twenty-seven (27) years before the merger took place. (Visaggio's Ex. 2; Jan. 14 Transcript, pp. 255-256). 6 44. Visaggio's uncontroverted evidence documented that the wages were quantified and were reasonable. This was outlined in Visaggio's Memorandum of Law submitted to the Appraiser at pages 12-14. 45. When adopting an appraiser's recommendation on the value of a dissenter's shares pursuant to Pa. R.C.P. 1579, the Court must ensure that the appraiser's recommendation is supported by competent and substantial evidence. In re Watt & Shand, 304 A.2d 694, 697 (Pa. 1973). 46. Mr. Duncan's failure to include the authorized but unpaid wages in his determination of the value of Shaffer's shares was not supported by competent and substantial evidence. 47. The absence of supporting evidence for Mr. Duncan's failure to include the authorized but unpaid wages in his valuation was plain on the face of his report and the record. 48. Therefore, the Court erred as a matter of law in adopting the report. 49. Because the Court's Opinion contains dispositive errors of fact and law which are clear on the face of the record, Visaggio's respectfully requests that the Court reconsider its October 20, 2014 Order and Opinion, for the reasons set forth above. The Court Should Not Have Adopted the Appraiser's Report Because The Appraiser Manifestly Erred by Not Applying the Proper Standard for Valuing Shares Pursuant to 15 Pa. C.S.A. § 1579(d). 50. Pursuant to 15 Pa. C.S. §1579(d), any dissenter to a merger is entitled to "...recover the amount by which the fair value of his shares is found to exceed the amount, if any, previously remitted, plus interest." 7 51. Both the Pennsylvania Supreme Court and the Pennsylvania Superior Court have analyzed the standard and the factors which must be considered when valuing shares pursuant to 15 Pa. C.S. §1579(d). See Watt, 304 A.2d at 694; In re Glosser Brothers, Inc., 555 A.2d 129 (Pa. Super. 1989). 52. In Glosser Brothers, the Superior Court held that the fair value of a minority shareholder's shares must be calculated as of the date of the merger. Glosser Brothers, 555 A.2d at 133. 53. The Glosser Court further held that the fair value of a dissenter's shares must be determined by evaluating the "going concern" rather than the liquidation value. Id. (citing Watt, 304 A.2d at 700). 54. Evaluation of a "going concern" includes examination of the net asset value, actual market value, and investment value of the shares, as well as "market value, asset value, dividends, earning prospects, the nature of the enterprise and any other facts which were known or which could be ascertained as of the date of the merger." Id. 55. In this case, however, the Appraiser's Report is completely devoid of any analysis of the going concern; instead, the Appraiser improperly used the value of the Property and the value of Visaggio's business equipment as the sole considerations when valuing Shaffer's Visaggio's shares. 56. Mr. Duncan did not consider any of the factors laid out by the Glasser Court. 57. Therefore, the Appraiser erred by not utilizing the proper valuation method for a dissenter's shares under 15 Pa. C.S. §1579(d). 8 58. This error was plain on the face of the Appraiser's Report. 59. Therefore, the Court erred as a matter of law in adopting the report. 60. In accordance with Cumberland County Local Rule 208.3(a)(2), the Honorable Kevin A. Hess previously entered an order deciding both parties' exceptions to the Appraiser's Report. 61. In accordance with Cumberland County Local Rule 208.3(a)(9), Visaggio's counsel has sought concurrence in this Motion from counsel for Shaffer. Counsel for Shaffer does not concur. WHEREFORE, Visaggio's, Inc. respectfully requests that the Court reconsider its decision adopting the Report of the Appraiser, decline to adopt the report, and calculate the value of Keith A. Shaffer's Visaggio's shares as set forth in the chart set forth in Visaggio's, Inc.'s proposed Conclusion of Law, ¶ 53, filed August 6, 2010. McNE WALLACE & NURICK LLC " By James P. DeAngelo I.D. No. 62377 jdeangelo@mwn.com Dana Windisch Chilson I.D. No. 208718 dchilson@mwn.com 100 Pine Street P.O. Box 1166 Harrisburg, PA 17108-1166 (717) 232-8000 Dated: October 30, 2014 Attorneys for Respondent 9 CERTIFICATE OF SERVICE The undersigned hereby certifies that on this date a true and correct copy of the foregoing document was served by first class U.S. mail upon the following: Hubert X. Gilroy, Esq. Katie J. Maxwell, Esq. Martson Law Offices A Professional Corporation Ten East High Street Carlisle, PA 17013 Dana Windisch Chilson Attorneys for Visaggio's Inc. Dated: October 30, 2014 McNEES WALLACE & NURICK LLC James P. DeAngelo Attorney ID No. 62377 Dana Windisch Chilson Attorney ID No. 208718 100 Pine Street P. 0. Box 1166 Harrisburg, PA 17108-1166 (717) 237-5470 (717) 260-1679 facsimile jdeangelmwn.com t -'t; 0 fliONO-Ii\ 2814 NOVV 18 P 2: 3 5 CUtIBERLA,,t0 COUNTY PENNSYLVANIA Attorneys for Visaggio's, Inc. IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA IN RE: VISAGGIO'S, INC. PETITION OF KEITH A. SHAFFER, DISSENTING SHAREHOLDER NOTICE OF APPEAL Notice is hereby given that Visaggio's Inc. hereby appeals to the Superior Court of Pennsylvania from the Opinion and Order entered in this matter on October 20, 2014. This Order has been entered on the docket, as evidenced by the attached copy of the docket entries. Dated: November 18, 2014 McNE By NO. 2009-2122 ALLACE & NURICK LLC 1 James P. DeAngelo I.D. No. 62377 jdeangelo@mwn.com Dana Windisch Chilson I.D. No. 208718 dchilson@mwn.com 100 Pine Street P.O. Box 1166 Harrisburg, PA 17108-1166 (717) 232-8000 Attorneys for Appellant 11453011042014 Cumberland County Prothonotary's Office Page 1 Civil Case Inquiry 2009-02122 SHAFFER KEITH A (vs) VISAGGIO'S INC Reference No..: Case Type • PETITION Judgment .00 Judge Assigned: HESS KEVIN A Disposed Desc.: Case Comments ************************** General Index ************************** SHAFFER KEITH A 1265 ASH LANE LEBANON, PA 17042-9606 VISAGGIO'S INC 6990 WERTZVILLE ROAD ENOLA, PA 17025 ****************** ****************** PETITIONER Filed Time Execution Date Jury Trial Disposed Date Higher Crt 1.: Higher Crt 2.: 4/03/2009 3:31 0/00/0000 0/00/0000 ************************************ Attorney Info ************************************ GILROY HUBERT X MARTSON LAW OFFICE 10 EAST HIGH STREET CARLISLE, PA 17013 RESPONDENT DEANGELO JAMES P MCNEES WALLACE & NURICK 100 PINE ST PO BOX 1166 HARRISBURG, PA 17108-1166 ******************************************** * Date Entries ******************************************** 4/03/2009 4/15/2009 4/20/2009 5/06/2009 6/04/2009 8/16/2010 11/01/2010 11/01/2010 11/09/2010 11/30/2010 ************************************ * ************************************ FIRST ENTRY PETITION FOR RELIEF PURSUANT TO 15 PA C S A S 1579 FILED BY KATHRYN L SIMPSON ESQ FOR PETITIONER PRAECIPE FOR ENTRY OF APPEARANCE FOR VISAGGIO'S INC - BY JAMES P DEANGELO ESQ AMENDED PETITION FOR RELIEF PUSUANT TO 15 PA CSA 1579 - BY KATHRYN L SIMPSON ATTY FOR KEITH A SHAFFER PRELIMINARY OBJECTIONS OF VISAGGIO'S INC TO PLAINTIFF'S AMENDED PETITION FOR RELIEF PURSUANT TO 15 P AC S A 1579 BY DANA M WINDISCH ESQ ORDER - 6/1/09 IN RE: PETITION FOR RELIEF PURSUANT TO 15 PA CSA SECTION 1579 - BY KEVIN A HESS J - COPIES MAILED 6/4/09 PETITIONER'S POST -HEARING SUBMISSION - BY KATHRYN L SIMPSON ATTY FOR PETITIONER KEITH SHAFFER REPORT OF APPRAISER VALUATION OF 25% INTEREST IN SHAREHOLDER VISAGGIO'S INC - BY WILLIAM A DUNCAN APPRAISER PETITIONERS APPEAL FROM REPORT OF APPRAISER - BY KATHRYN L SIMPSON ATTY FOR PLFF ORDER OF COURT DATED 11-05-2010 - APPOINTMENT OF VIEWERS IF VACATED AND THE BILL OF COSTS IS ORDERED TO BE PAID BY THE PARTIES - - BY THE COURT KEVIN A HESS PJ - COPIES MAILED AND BILLED VISSAGGIOS INCS EXCEPTIONS TO THE REPORT OF APPRAISER - BY DANA 11453011042014 Cumberland County Prothonotary's Civil Case Inquiry 2009-02122 SHAFFER KEITH A (vs) VISAGGIO'S INC Reference No..: Case Type • Judgment Judge Assigned: Disposed Desc.: Case Comments PETITION .00 HESS KEVIN A 10/01/2013 10/01/2013 4/08/2014 WINDISCH CHILSON ATTY FOR RESPONDENT Office Filed Time Execution Date Jury Trial Disposed Date Higher Crt 1.: Higher Crt 2.: Page 2 4/03/2009 3:31 0/00/0000 0/00/0000 PRAECIPE FOR WITHDRAWAL OF APPEARANCE - BY KATHRYN L SIMPSON ATTY FOR PLFF PRAECIPE TO ENTER APPEARANCE - BY HUBERT X GILROY ATTY FOR PLFF PRAECIPE FOR LISTING CASE THE REPORT OF APPRAISER - SHAFFER *SENT TO JAMIE AT CA - AS OF YET UNNAMED JUDGE* FOR ARGUMENT - VISSAGIO'S EXCEPTION TO BY HUBERT X GILROY ATTY FOR KEITH NOT FOR ARGUMENT COURT - WILL GO BEFORE 6/26/2014 ORDER - DATED 6/26/14 - IN RE: PRELIMINARY OBJECTIONS AND EXCEPTIONS TO THE REPORT OF APPRAISER - ARGUMENT IS SET FOR 8/14/14 © 11:00 AM - BY THE COURT KEVIN A HESS P J - COPIES MAILED 6/26/14 9/04/2014 9/19/2014 9/24/2014 10/20/2014 10/30/2014 ORDER - 9/4/14 - IN RE: PRELIMINARY OBJECTIONS OF RESPONDENTS - *OVERRULED* WITH THE EXCEPTION THAT THE PRELIMINARY OBJECTION TO SERVICE IS *SUSTAINED* AND IMPROPER SERVICE IN THIS CASE IS SET ASIDE - BY THE COURT KEVIN A HESS PJ COPIES MAILED 9/4/14 ATTORNEY'S ACCEPTANCE OF SERVICE - BY DANA W CHILSON ATTY FOR DEFT STIPULATION - BY JAMES P DEANGELO ATTY FOR BISAGGIO'S INC & KATIE J MAXWELL ATTY FOR KEITH A SHAFFER ORDER DATED 10-20-14 IN RE PETITIONER'S APPEAL FROM REPORT OF APPRAISER - REPORT IS *ADOPTED* - BY THE COURT KEVIN A HESS PJ - COPIES MAILED 10-20-14 VISAGGIO'S INC'S MOTION FOR RECONSIDERATION - BY DANA WINDISCH CHILSON ATTY FOR RESPONDENT LAST ENTRY ******************************************************************************** * Escrow Information * Fees & Debits Beg Bal Pymts/Adj End Bal ******************************************************************************** * * PETITION TAX ON PETITION SETTLEMENT AUTOMATION FEE JCP FEE PREACIPE ARGUME 55.00 .50 8.00 5.00 10.00 19.75 55.00 .50 8.00 5.00 10.00 19.75 .00 .00 .00 .00 .00 .00 98.25 98.25 .00 11453011042014 2009-02122 SHAFFER Reference No..: Case Type Judgment Judge Assigned: Disposed Desc.: Case Comments Cumberland County Prothonotary's Civil Case Inquiry KEITH A (vs) VISAGGIO'S INC PETITION .00 HESS KEVIN A Office Filed Time Execution Date Jury Trial Disposed Date Higher Crt 1.: Higher Crt 2.: Page 3 4/03/2009 3:31 0/00/0000 0/00/0000 ******************************************************************************** * End of Case Information * ******************************************************************************** McNEES WALLACE & NURICK LLC James P. DeAngelo Attorney ID No. 62377 Dana Windisch Chilson Attorney ID No. 208718 100 Pine Street P. O. Box 1166 Harrisburg, PA 17108-1166 (717) 237-5470 (717) 260-1679 facsimile jdeangel(a�mwn.com ThE E PRO i riO a If''1 , MDV 18 PM 2: 35 i^ PPENNS tLVAN D COUNTY Attorneys for Visaggio's, Inc. IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA IN RE: VISAGGIO'S, INC. NO. 2009-2122 PETITION OF KEITH A. SHAFFER, DISSENTING SHAREHOLDER NO NECESSITY TO REQUEST TRANSCRIPT The relevant portions of the proceedings in this matter have already been transcribed and no further transcription is necessary. Dated: November 18, 2014 McNEES WALLACE & NURICK LLC By /�.�!ki James P. DeAngelo I.D. No. 62377 jdeangelo@mwn.com Dana Windisch Chilson I.D. No. 208718 dchilson@mwn.com 100 Pine Street P.O. Box 1166 Harrisburg, PA 17108-1166 (717) 232-8000 Attorneys for Appellant CERTIFICATE OF SERVICE The undersigned hereby certifies that on this date a true and correct copy of the foregoing document was served by first class U.S. mail upon the following: Hubert X. Gilroy, Esq. Katie J. Maxwell, Esq. Martson Law Offices A Professional Corporation Ten East High Street Carlisle, PA 17013 Attorneys for Keith A. Shaffer The Honorable Kevin A. Hess Cumberland County Courthouse 1 Courthouse Square Carlisle, PA 17013 Melissa H. Calvaneill District. Court Administrator Cumberland County Courthouse 1 Courthouse Square Suite 301 Carlisle, PA 17013 Dana Windisch Chilson Attorneys for Visaggio's Inc. Dated: November 18, 2014 McNEES WALLACE & NURICK LLC James P. DeAngelo Attorney ID No. 62377 Dana Windisch Chilson Attorney ID No. 208718 100 Pine Street P. O. Box 1166 Harrisburg, PA 17108-1166 (717) 237-5470 (717) 260-1679 facsimile jdeangel@mwn.com THE PRO OirjQNOire. tY 2O R OV 18 Pt- 2: 36 CUMBERLAND COUNTY PENNSYLVANIA Attorneys for Visaggio's, Inc. IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA IN RE: VISAGGIO'S, INC. NO. 2009-2122 PETITION OF KEITH A. SHAFFER, DISSENTING SHAREHOLDER PRAECIPE TO FILE LETTER OF CREDIT TO: CUMBERLAND COUNTY PROTHONOTARY Pursuant to Pa.R.A.P 1731(a) and 1734(a)(2)(iii), Visaggio's Inc. files the attached Letter of Credit in the amount of $157,500.00 fixed by Pennsylvania Rules of Appellate Procedure. The original Letter of Credit is attached hereto as Exhibit "A." Dated: November 18, 2014 McNE„E$ WALLACE & NURICK LLC By James P. DeAngelo I.D. No. 62377 jdeangelo@mwn.com Dana Windisch Chilson I.D. No. 208718 dchilson@mwn.com 100 Pine Street P.O. Box 1166 Harrisburg, PA 17108-1166 (717) 232-8000 Attorneys for Visaggio's Inc. EX November 17, 2014 TO: MID PENN BANK CLEAN IRREVOCABLE LETTER OF CREDIT On all communications please refer to: Letter of Credit Number: 588 Amount (USD) 157,500.00 Account Party: Visaggio's, Inc. Beneficiaries The Cincinnati Insurance Company, The Cincinnati Casualty Company, for itself, and on behalf of its parents, affiliates and subsidiaries 6200 S. Gilmore Road Fairfield, OH 45014-5141 Attention: Management Liability & Surety Department Ladies and Gentlemen: We hereby establish this CLEAN, IRREVOCABLE LETTER OF CREDIT ("Credit") in your favor as Beneficiaries (referred to herein as "you" or "your") and authorize you to draw on us up to the aggregate amount of One Hundred Fifty Seven Thousand Five Hundred Dollars United States Dollars ($157.500.00) effective immediately. This Credit is issued, presentable and payable at our office at 349 Union St., Millersburg, Pennsylvania 17061. After this Credit has been issued, it cannot be revoked, amended or reduced without your written acknowledgment and consent. The term "Beneficiaries" includes any successor by operation of law of the named Beneficiaries including, without limitation, any liquidator, rehabilitator, receiver or conservator. We hereby undertake to fully and promptly honor each of your sight drafts drawn on us under this Credit, for all or any part of this Credit, if presented at our office specified in paragraph one on or before the close of business on the expiration date of November 17, 2015 or any automatically extended expiration date. If you so choose, you will be able to draw on this Credit more than once, without amendment, provided that the sum of the amounts that you have drawn does not exceed the full amount of this Credit. This Credit sets forth in full the terms of our undertaking, and such undertaking shall not in any way be modified, amended or amplified by reference to any note, document, instrument or agreement referred to herein or in which this Credit is referred to or to which the Credit relates and any such reference shall not be deemed to be incorporated herein by reference. The obligation of Mid Penn Bank under this Credit is not subject to any condition or qualification, and is the individual obligation of Mid Penn Bank, and is in no way contingent upon reimbursement with respect thereto or upon our ability to perfect any lien, security interest or any other reimbursement. 349 Union Street, Millersburg, PA 17061 • 1-866-642-7736 • midpennbank.com Member FDIC It is a condition of this Credit that it shall be deemed to be automatically extended, without amendment, for successive one year periods from the stated expiration date, or any future expiration date, unless we have notified you in writing by registered mail or overnight courier, not less than ninety (90) days prior to the then relevant expiration date, that we elect not to extend this Credit. In that event, you may draw your sight draft on us under this Credit on or before the close of business on the then relevant expiration date, up to the full amount then available hereunder. Our notice of election not to extend shall be sent by registered mail or overnight courier to The Cincinnati Insurance Company or The Cincinnati Casualty Company to the attention of the Management Liability & Surety Department. We hereby represent and affirm that the execution of this Credit will not constitute a violation of any law or regulation which may limit the amount of credit which can be extended by this bank to any single borrower or customer. This Credit is subject to and governed by the Uniform Customs and Practice for Documentary Credits, 2007 Revision, International Chamber of Commerce (Publication No. 600) and the laws of the State of Ohio, and in the event of any conflict, the laws of the State of Ohio will control. If this Credit expires during an interruption of business as described in Article 36 of said Publication 600, Mid Penn Bank hereby specifically agrees to effect payment if this Credit is drawn against within 30 days after the resumption of business. No suit or action will be commenced under this letter of credit other than in a court competent jurisdiction in the State of Ohio, and the parties hereto irrevocably and unconditionally submit to the exclusive jurisdiction of such court. Joan Dickinson, Senior Vice President By: I duly auth ed officer \f;i4 •- D/CJ "id e hJ Printed name and Title (-WO 9 — 97010 Phone Number S&P CERTIFICATE OF SERVICE The undersigned hereby certifies that on this date a true and correct copy of the foregoing document was served by first class U.S. mail upon the following: Hubert X. Gilroy, Esq. Katie J. Maxwell, Esq. Martson Law Offices A Professional Corporation Ten East High Street Carlisle, PA 17013 Attorneys for Keith A. Shaffer The Honorable Kevin A. Hess Cumberland County Courthouse 1 Courthouse Square Carlisle, PA 17013 Melissa H. Calvaneill District Court Administrator Cumberland County Courthouse 1 Courthouse Square Suite 301 Carlisle, PA 17013 Dana Windisch Chilson Attorneys for Visaggio's Inc. Dated: November 18, 2014 Joseph D, Seletyn, Esq. Prothonotary Jennifer Traxler, Esq. Deputy Prothonotary fpupertor Court of fieuuotanta BueII, David D. Prothonotary Cumberland County Courthouse 1 Courthouse Square Carlisle, PA 17013 Middle District November 24, 2014 RE: Keith A. Shaffer v. Visaggio's, Inc. Appellant 1959 MDA 2014 Trial Court Docket No: 2009-02122 Dear David D. BueII: Pennsylvania Judicial Center P.O. Box 62435 601 Commonwealth Avenue, Suite 1600 Harrisburg, PA 17106-2435 (717) 772-1294 www.pacourts.us/courts/superior-court Enclosed please find a copy of the docket for the above appeal that was recently filed in the Superior Court. Kindly review the information on this docket. Appellant's counsel is also being sent a Docketing Statement, pursuant to Pa.R.A.P. 3517, for completion and filing. Please note that Superior Court Dockets are available on the Internet at the Web site address printed at the top of this page. Thank you. Respectfully, Jennifer Traxler, Esq. Deputy Prothonotary /ks Enclosure 1:40 P.M. Appeal Docket Sheet Docket Number: 1959 MDA 2014 Page 1 of 3 November 24, 2014 Keith A. Shaffer v. Visaggio's, Inc. Appellant Initiating Document: Case Status: Case Processing Status: Journal Number: Case Category: CAPTION CASE INFORMATION Notice of Appeal Superior Court of Pennsylvania Secure Active November 18, 2014 Awaiting Original Record Civil CONSOLIDATED CASES Next Event Type: Receive Docketing Statement Next Event Type: Original Record Received Appellant Visaggi Pro Se: No IFP Status: No Attorney: Bar No: Law Firm: Address: Phone No: Receive Mail: Receive EMail: Case Type(s): SCHEDULED EVENT COUNSEL INFORMATION o's, Inc. Appoint Counsel Status: Represented Chilson, Dana Windisch 208718 McNees, Wallace & Nurick, LLC Mcnees Wallace & Nurick LIc 100 Pine St PO Box 1166 Harrisburg, PA 17108-1166 (717) 237-5457 Fax No: Yes Yes EMail Address: dchilson@mwn.com Civil Action Law RELATED CASES Next Event Due Date: December 8, 2014 Next Event Due Date: January 20, 2015 Attorney: Bar No: Law Firm: Address: Phone No: Receive Mail: Receive EMail: DeAngelo, James Paul 062377 McNees, Wallace & Nurick, LLC 100 Pine St PO Box 1166 Harrisburg, PA 17108-1166 (717) 232-8000 No Yes EMail Address: jdeangelo@mwacom Fax No: (717) 237-5300 1:40 P.M. Appeal Docket Sheet Docket Number: 1959 MDA 2014 Page 2 of 3 November 24, 2014 COUNSEL INFORMATION Appellee Shaffer, Keith A. Pro Se: No Appoint Counsel Status: Represented IFP Status: No Attorney: Gilroy, Hubert Xavier Bar No: 029943 Law Firm: Martson Deardorff Williams Otto Gilroy & Faller Address: Martson Deardorff ET AL 10 E High St Carlisle, PA 17013-3015 Phone No: (717) 243-3341 Fax No: Receive Mail: Yes Receive EMail: No EMail Address: Superior Court of Pennsylvania Secure Attorney: Maxwell, Katie James Bar No: 206018 Law Firm: Martson Deardorff Williams Otto Gilroy & Faller Address: Martson Law Offices 10EHigh St Carlisle, PA 17013-3093 Phone No: (717) 243-3341 Fax No: Receive Mail: No Receive EMail: Yes EMail Address: kmaxwell@martsonlaw.com FEE INFORMATION Fee Dt Fee Name Fee Amt Receipt Dt Receipt No Receipt Amt 11/18/2014 Notice of Appeal 85.5011/21/2014 2014 -SPR -M-001016 85.50 AGENCY/TRIAL COURT INFORMATION Court Below: Cumberland County Court of Common Pleas County: Cumberland Division: Cumberland County Civil Division Order Appealed From: October 20, 2014 Judicial District: 09 Documents Received: November 21, 2014 Notice of Appeal Filed: November 18, 2014 Order Type: Order Entered OTN(s): Lower Ct Docket No(s):2009-02122 Lower Ct Judge(s): Hess, Kevin A. President Judge Original Record Item ORIGINAL RECORD CONTENT Filed Date Content Description Date of Remand of Record: Filed Date BRIEFING SCHEDULE None None DOCKET ENTRY Docket Entry / Representing Participant Type Filed By 1:40 P.M. Appeal Docket Sheet Docket Number: 1959 MDA 2014 Page 3 of 3 November 24, 2014 DOCKET ENTRY Filed Date Docket Entry / Representing Participant Type Superior Court of Pennsylvania Secure November 18, 2014 Notice of Appeal Docketed Filed By Appellant Visaggio's, Inc. November 24, 2014 Docketing Statement Exited (Civil) Middle District Filing Office CERTIFICATE AND TRANSMITTAL OF RECORDS UNDER PENNSYLVANIA RULE OF APPELLATE PROCEDURE 1931 (C) Superior Court of PA To the Prothonotary of the Apellate Court to which the within matter has been appealed: Superior Court of PA The undersigned, Prothonotary of the Court of Common Pleas of Cumberland County, the said court being a court of record, do hereby certify that annexed hereto is a true and correct copy of the whole and entire record, including an opinion of the court as required • by PA R.A.P. 1925, the original papers and exhibits, if any on file, the transcript of the proceedings, if any, and the docket entries in the following matter: KEITH A. SHAFFER Vs. VISAGGIO'S INC. 2009-2122 CIVIL TERM 1959 MDA 2014 The documents comprising the record have been numbered from No. 1 to 164, and attached hereto as Exhibit A is a list of the documents correspondingly numbered and identified with reasonable definiteness, including with respect to each document, the number of pages comprising the document. The date on which the record has been transmitted to the Appellate Court is 12/2/2014. David PP Prot onotary Alma Kostjerevac, Deputy An additional copy of this certificate is enclosed. Please sign and date copy, thereby acknowledging receipt of this record. Date Signature & Title Commonwealth of Pennsylvania County of Cumberland • ss: David D. Buell , Prothonotary of the Court of Common Pleas in and for said County, do hereby certify that the foregoing is a full, true and correct copy of the whole record of the case therein stated, wherein KEITH A. SHAFFER Plaintiff, and VISAGGIO'S INC. Defendant, as the same remains of record before the said Court at No. 2009-2122 of Civil Term. In TESTIMONY WHEREOF, I have hereunto set my hand and affixed the seal of said Court this ' 2ND day of DECEMBER A. D., 2014 Kevin A. Hess President Judge of the .Judicial District, composed of the County of Cumberland, do certify that David D. Buell , by whom the annexed record, certificate and attestation were made and given, and who, in his own proper handwriting, thereunto subscribed his name and affixed the seal of the Court of Common Pleas of said County. was, at thetime of so doing, and now is Prothonotary in and for said County of Cumberland in the Commonwealth of Pennsvlvania, duly commissioned and qualified to all ofwhose acts as such full faith and credit are andought to be given as well in Courts of judicature as elsewhere, and that the said record, certificate and attestation are in due form of law and made by 1 roper officcr 47 Prothonotary Ninth Commonivealth of Pennsylvania County of Cumberland ss: President Judge David D. Buell • , Prothonotary of the Court of Common Pleas in and for the said County, do certify that the Honorable Kevin A. Hess ' by whom the foregoing attestation was inade, and who has thereunto subscribed his name, was, at the time of making thereof, and still is President Judge of the Court of Common Pleas, Orphan' Court and Court of Quarter Sessions of the Peace in and for said County. duly Commissioned and qualified; to all whose acts as such full faith and credit are and ought to he given, as well in Courts of judicature as elsewhere, IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed the seal of said Court this 2ND da DECEMBER A.D. 2014 Prothonotary 1 No. Term 19_ 2009-2122 CIVIL TERM No* 1959 MDA 2014 KEITH A. SHAFFER Versus VISAGGIO'S INC. EXEMPI,IFIED RECORD Cumberland From County Debt, Int. from Costs Entered and Filed Prothonotary. Among the Records and Proceedings enrolled in the court of Common Pleas in and for the Cumberland 2009-2122 CIVIL TERM 1959 MDA 2014 Term, 19 county t to No. COPY OF Appearance in the Commonwealth of Pennsylvania is contained the following: DOCKET ENTRY KEITH A. SHAFFER vs. VISAGGIO'S INC. **SEE CERTIFIED COPY OF DOCKET ENTERIES** PYS511 Cumberland County Prothonotary's Civil Case Print 2009-02122 SHAFFER KEITH A (vs) VISAGGIO'S INC Reference No..: Case Type PETITION Judgment .00 Judge Assigned: HESS KEVIN A Disposed Desc.: Case Comments Office Filed Time Execution Date Jury Trial Dis-posed Date Higer Crt 1.: Higher Crt 2.: Page 1 4/03/2009 3:31 0/00/0000 0/00/0000 1959MDA2014 ******************************************************************************** General Index Attorney Info SHAFFER KEITH A PETITIONER GILROY HUBERT X 1265 ASH LANE LEBANON PA 17042 9606 VISAGGIO'S INC 6990 WERTZVILLE ROAD ENOLA PA 17025 RESPONDENT DEANGELO JAMES P CHILSON DANA WINDISCH ******************************************************************************** * Date Entries ******************************************************************************** /-52 4/03/2009 53-554/15/2009 5-6-60 4/20/2009 GI -66 5/06/2009 16/03/2009 6R-86,5/16/2010 VH0611/01/2010 /04011/01/2010 R711/05/2010 III— (CI 11 / 3 0 / 2 0 10 12.010/01/2013 110 10/01/2013 /21 4/08/2014 it22, 6/26/2014 12.3 9/04/2014 FIRST ENTRY PETITION FOR RELIEF PURSUANT TO 15 PA C S A S 1579 FILED BY KATHRYN L SIMPSON ESQ FOR PETITIONER PRAECIPE FOR ENTRY OF APPEARANCE FOR VISAGGIO'S INC - BY JAMES P DEANGELO ESQ AMENDED PETITION FOR RELIEF PUSUANT TO 15 PA CSA 1579 - BY KATHRYN L SIMPSON ATTY FOR KEITH A SHAFFER PRELIMINARY OBJECTIONS OF VISAGGIO'S INC TO PLAINTIFF'S AMENDED PETITION FOR RELIEF PURSUANT TO 15 P AC S A 1579 BY DANA M WINDISCH ATTY FOR DEFT ORDER - 6/1/09 IN RE: PETITION FOR RELIEF PURSUANT TO 15 PA CSA SECTION 1579 - BY KEVIN A HESS J - COPIES MAILED 6/4/09 PETITIONER'S POST -HEARING SUBMISSION - BY KATHRYN L SIMPSON ATTY FOR PETITIONER KEITH SHAFFER REPORT OF APPRAISER VALUATION OF 255k INTEREST IN SHAREHOLDER VISAGGIO'S INC - BY WILLIAM A DUNCAN APPRAISER PETITIONERS APPEAL FROM REPORT OF APPRAISER - BY KATHRYN L SIMPSON ATTY FOR PLFF ORDER OF COURT DATED 11-05-2010 - APPOINTMENT OF VIEWERS IF VACATED AND THE BILL OF COSTS IS ORDERED TO BE PAID BY THE PARTIES - - BY THE COURT KEVIN A HESS PJ - COPIES MAILED AND BILLED VISSAGGIOS INCS EXCEPTIONS TO THE REPORT OF APPRAISER - BY DANA WINDISCH CHILSON ATTY FOR RESPONDENT PRAECIPE FOR WITHDRAWAL OF APPEARANCE - BY KATHRYN L SIMPSON ATTY FOR PLFF PRAECIPE TO ENTER APPEARANCE - BY HUBERT X GILROY ATTY FOR PLFF PRAECIPE FOR LISTING CASE FOR ARGUMENT - VISSAGIO'S EXCEPTION TO THE REPORT OF APPRAISER - BY HUBERT X GILROY ATTY FOR KEITH SHAFFER *SENT TO JAMIE AT CA - NOT FOR ARGUMENT COURT - WILL GO BEFORE AS OF YET UNNAMED JUDGE* ORDER - DATED 6/26/14 - IN RE: PRELIMINARY OBJECTIONS AND EXCEPTIONS TO THE REPORT OF APPRAISER - ARGUMENT IS SET FOR 8/14/14 (4) 11:00 AM - BY THE COURT KEVIN A HESS P J - COPIES MAILED 6/26/14 ORDER - 9/4/14 - IN RE: PRELIMINARY OBJECTIONS OF RESPONDENTS - *OVERRULED* WITH THE EXCEPTION THAT THE PRELIMINARY OBJECTION TO PYS511 2009-02122 Cumberland County Prothonotary's Office Page 2 Civil Case Print SHAFFER KEITH A (vs) VISAGGIO'S INC Reference No..: Filed 4/03/2009 Case Type • PETITION Time 3:31 Judgment.00 Execution Date 0/00/0000 Judge Assigned: HESS KEVIN A Jury Trial Disposed Desc.: Disposed Date0/00/0000 Case Comments Higher Crt 1.: 1959MDA2014 Higher Crt 2.: SERVICE IS *SUSTAINED* AND IMPROPER SERVICE IN THIS CASE IS SET ASIDE - BY THE COURT KEVIN A HESS PJ COPIES MAILED 9/4/14 /%2T 9/19/2014 125- 127 9/24/2014 128- 13 510/20/2014 136- 1710/30/2014 15011/18/2014 (S2 11/18/2014 1$3- (5711/18/2014 1(7 ( 11/25/2014 ATTORNEY'S ACCEPTANCE OF SERVICE - BY DANA W CHILSON ATTY FOR DEFT STIPULATION - BY JAMES P DEANGELO ATTY FOR BISAGGIO'S INC & KATIE J MAXWELL ATTY FOR KEITH A SHAFFER OPINION AND ORDER DATED 10-20-14 IN RE PETITIONER'S APPEAL FROM REPORT OF APPRAISER - REPORT IS *ADOPTED* - BY THE COURT KEVIN A HESS PJ - COPIES MAILED 10-20-14 VISAGGIO'S INC'S MOTION FOR RECONSIDERATION - BY DANA WINDISCH CHILSON ATTY FOR RESPONDENT NOTICE OF APPEAL TO SUPERIOR COURT - BY DANA WINDISCH CHILSON ATTY FOR DEFT **COPY TO SUPERIOR COURT** NO NECESSITY TO REQUEST TRANSCRIPT - BY DANA WINDISCH CHILSON ATTY FOR DEFT PRAECIPE TO FILE LETTER OF CREDIT - BY DANA WINDISCH CHILSON ATTY FOR DEFT SUPERIOR COURT OF PA NOTICE OF APPEAL DOCKETING TO # 1959 MDA 2014 12/02/2014 NOTICE OF DOCKET ENTRIES MAILED TO HUBERT X GILROY ESQ - JAMES P DEANGELO ESQ AND DANA WINDISCH CHILSON ESQ LAST ENTR,Y ** *********** *********** * * ******** ********** ************** 162. ************ * Escrow Information * Fees & Debits Beg Bal Pmts/Adi End Bal ******************************** ******** ****** ******************************* PETITION 55.00 TAX ON PETITION .50 SETTLEMENT 8.00 AUTOMATION FEE 5.00 JCP FEE 10.00 PREACI.PE ARGUME 19.75 APPEAL HIGH CT 57.00 55.00 .50 8.00 5.00 10.00 19.75 57.00 .00 .00 .00 .00 .00 .00 .00 155.25 155.25 .00 ******************************************************************************** * End of Case Information * ******************************************************************************** /63 - - - - - - - /191 sc. 164 Ydy9'r•0's TRUE COPY FROM RECORD In Testimony whereof, I here unto set my hand and the se9l of said Court at Carlisle, Pa. This .21/day of -De C• , 20 / 62/ Prothhonotary s 'e�'&L J9, / CERTIFICATE AND TRANSMITTAL OF RECORDS UNDER PENNSYLVANIA RULE OF APPELLATE PROCEDURE 1931 (C) Superior Court of PA To the Prothonotary of the Apellate Court to which the within matter has been appealed: Superior Court of PA The undersigned, Prothonotary of the Court of Common Pleas of Cumberland County, the said court being a court of record, do hereby certify that annexed hereto is a true and correct copy of the whole and entire record, including an opinion of the court as required by PA R.A.P. 1925, the original papers and exhibits, if any on file, the transcript of the proceedings, if any, and the docket entries in the following matter: KEITH A. SHAFFER Vs. VISAGGIO'S INC. 2009-2122 CIVIL TERM 1959 MDA 2014 The documents comprising the record have been numbered from No. 1 to 164, and attached hereto as Exhibit A is a list of the documents correspondingly numbered and identified with reasonable definiteness, including with respect to each document, the number of pages comprising the document. The date on which the record has been transmitted to the Appellate Court is 12/2/2014. D D. B,hell, Prothonotary Alma Kostjerevac, Deputy An additional copy of this certificate is enclosed. Please sign and date copy, thereby acknowledging receipt of this record. Date Signature & Title Received to Superior Court DEC 0 2 2014 MIDDLE E;i (u• 37 IN THE COURT OF COMMON PLEAS �i OF CUMBERLAND COUNTY, PENNSYLVANIA !!; 1.', I t IN RE: VISAGGIO'S, INC. PETITION OF KEITH A. SHAFFER, DISSENTING SHAREHOLDER MOTION OF VISAGGIO'S, INC. FOR SUPPLEMENTATION OF TRIAL COURT RECORD Pursuant to Pa. R.A.P. 1926, Respondent, Visaggio's, Inc. ("Visaggio's), hereby moves the Court for supplementation of the certified record on appeal. In support of this motion, Visaggio's avers as follows: 1. Judge Hess previously decided matters in this case. 2. This case is presently on appeal to the Superior Court and is docketed at No. 1959 MDA 2014. 3. Pursuant to Cumberland County local practice, the briefs of the parties submitted in the trial court were not made part of the certified record on appeal. 4. Petitioner's Brief in Support of Exceptions to the Report of Appraiser ("Petitioner's Brief") was submitted to this Court by Petitioner Keith A. Shaffer on August 11, 2014. A copy is attached hereto as Exhibit A. 5. Petitioner's Brief includes an argument agreeing with Visaggio's position on one of the issues on appeal, i.e., the impropriety of valuing commercial equipment based on the amount for which it is insured. 6. Although Petitioner undisputedly asserted this position before the trial court, he did so only in Petitioner's Brief and the related oral argument, neither of which is part of the certified trial court record sent to the Superior Court. NO. 2009-2122 7. On August 6, 2010, Visaggio's submitted to the trial court, its Memorandum of Law, Findings of Fact, and Conclusions of Law but this document is not a part of the certified trial court record sent to the Superior Court. A copy is attached hereto as Exhibit B. 8. Pa. R.A.P. 1926 allows the certification and transmittal of a supplemental record to the appellate court, to reflect what truly occurred in the trial court. 9. The trial court record in this case should be supplemented to include Petitioner's Brief in Support of Exceptions to the Report of Appraiser, dated August 11, 2014, and Visaggio's Memorandum of Law, Findings of Fact, and Conclusions of Law. 10. Petitioner has declined to stipulate to the supplementation of the record and does not concur in this Motion. WHEREFORE, Visaggio's respectfully requests that the Prothonotary be directed to certify and transmit a supplemental record to the Superior Court forthwith, containing the attached copy of Petitioner's Brief. Dated: January 8, 2015 MCNEES WALLACE & NURICK LLC By ames P. j►'eAngelo I.D. No. 377 jdeangelo@mwn.com Dana Windisch Chilson I.D. No. 208718 dchilson@mwn.com 100 Pine Street P.O. Box 1166 Harrisburg, PA 17108-1166 (717) 232-8000 Attorneys for Respondent, Visaggio's, Inc. 2 of 2 • Exhibit A _ - F:\FILES\Clients\14983 Shaffer\ 14983.1 .brief to exceptions.wpd Hubert X. Gilroy, Esquire I.D. 29943 Katie J. Maxwell, Esquire I.D. No. 206018 MARTSON DEARDORFF WILLIAMS OTTO GILROY & FALLER MARTSON LAW OFFICES 10 East High Street Carlisle, PA 17013 (717) 243-3341 Attorneys for Petitioner IN RE: VISAGGIO'S, INC., : IN THE COURT OF COMMON PLEAS OF : CUMBERLAND COUNTY, PENNSYLVANIA PETITION OF KEITH A. SHAFFER, NO: 2009-2122 DISSENTING SHAREHOLDER : CIVIL ACTION - LAW PETITIONER'S BRIEF IN SUPPORT OF EXCEPTIONS TO THE REPORT OF APPRAISER AND NOW, comes Petitioner, Keith A. Shaffer, ("Shaffer") by and through his attorneys, MARTSON LAW OFFICES, and submits the following Brief in Support of his Exceptions to the Report of Appraiser. I. Relevant Factual and Procedural History Shaffer is a minority shareholder of Visaggio's, Inc. ("Visaggio's"). He owns twenty-five percent (25%) of Visaggio's stock. On November 10,2008, Shaffer received a notice pursuant to 15 Pa. C.S.A. §1575 from Visaggio's advising him that he must present a demand for payment of his share of the stock. Upon receipt of the notice, Shaffer demanded $440,000.00 for his twenty-five percent (25%) interest in Visaggio's. Upon Visaggio's counter-offer of $35,000.00, Shaffer increased his demand to $500,000.00. On April 3, 2009, Shaffer instituted the above captioned action by filing a Petition for Relief pursuant to 15 Pa. C.S.A. §1579, seeking a determination of the fair value of his shares. Visaggio's entered an appearance on April 14, 2009. Shaffer filed an Amended Petition on April 20, 2009. Visaggio's filed Preliminary Objections to the Amended Petition on May 5, 2009, which the Court knows are still outstanding. William Duncan, Esquire, was appointed by the Court as an appraiser on June 1, 2009, and was tasked with appraising the value of Shaffer's ownership in Visaggio's. Three days of hearings on the matter were held in January and June of 2010. Attorney Duncan filed his report of appraiser on October 1, 2010, and both parties filed exceptions to his report. The appraiser's report valued Vissagio's at $525,000.00 and Shaffer's 25% share at $131,250.00. Shaffer now files this brief in support of his exceptions. II. Court's Scope of Review In reviewing an appraiser's recommendation on the value of a dissenter's share pursuant to 15 Pa. C.S.A. §1579, the Court must determine whether the appraiser's report and recommendation is supported by competent and substantial evidence. In re: Watt & Shand, 304 A.2d 694 (Pa. 1973). Substantial evidence has been found in Pennsylvania case law to be "such relevant evidence as a reasonable mind might accept as adequate to support the conclusion. In re: Glosser Bros., Inc., 55 A.2d 129, 132-33 (Pa. Super. Ct. 1989). III. Argument Petitioner filed exceptions to the Appraiser's Report on October 29, 2010 alleging that the Appraiser erred in applying the facts presented during testimony to the law. A. Asset Valuation Petitioner argues that the Appraiser erred when he failed to include $111,747 in non- operation assets into the calculation of the asset valuation of Vissagio's as testified to by Petitioner's expert witness, James A. Smeltzer. Mr. Smeltzer testified that $111,747 in securities must be added to value of the Vissagio's stock at the time of the merger. (January 13, Transcript p. 124-131). The value of the non -operation assets is totally ignored by the Appraiser's report, and is not included in his calculation of the value of the business. B. Judicial Admissions The Appraiser's valuation of Vissagio's at $525,000 completely disregarded the testimony of Mr. Lumadue, Vissagio's President, which valued the business between $3,000,000 and $5,000,000. Mr. Lumadue testified that he would be willing to sell the business for "four or five million dollars" (January 14, Transcript p. 271). While Respondent argues that this statement was " a far cry from giving his opinion on the value of the business" it is an admission and should have been binding on Vissagio's. A statement 2 of fact by one party, for his benefit, is a judicial admission and is binding on that party. Coleman v. Wyeth Pharms., Inc., 6 A.3d 502, 524-25 (Pa. Super. Ct. 2010). Respondent further argues that Mr. Lumadue is not an expert in business valuation and that his testimony should accordingly be discounted, and that the Court should rely solely on the testimony of its expert'. However, Vissagio's expert Mr. Boles valued the business' stock at zero. The difference between these two Vissagio's witnesses' valuations is staggering and accordingly, the Court should not rely solely on Mr. Boles' valuation. Pennsylvania caselaw supports the notion that property owners are competent to testify as to the value of what they own. Sgarlat Estate v. Commonwealth, 158 A.2d 541 (Pa. 1960). Respondent's brief cites two other cases' to show that an owner's testimony regarding the value of his property should be closely scrutinized because the "owner may not... possess all the qualifications that would be required of others who testify as to value." However, these other cases were discounting the owner's testified to value due to the inherent interest the owner had in a condemnation action in the property being overvalued. Here, Mr. Lumadue would have stood to gain more by undervaluing his assets; and accordingly, his admission of a business value of $3,000,000 to $5,000,000 should be binding. If the Appraiser had used even the low-end of the range admitted to by Mr. Lumadue, Petitioner's share in the business would be $750,000, an increase of $618,750 from the value as decided by the Appraiser. C. Improper Valuation of Business Equipment The remaining exception filed by Petitioner dealt with the $325,000 value assigned to Vissagio's business equipment by the Appraiser. The Appraiser's report indicates that this value was derived through a combination of the insurance coverage for those assets as well as the Appraiser's personal inspection of the equipment. It appears that the valuation method used for the business 'Conversely, Vissagio's argues later on in their Brief in Support of their Eexceptions that Mr. Lumadue's testimony should be entirely qualified, and his analysis as to the unpaid wages still owing on the business' books accepted in its entirety. 2 Hencken v. Bethlehem Municpal Water Authority, 72 A.2d 264 (Pa. 1950) and Lenik Condemnation Case, 172 A.2d 316 (Pa. 1961). 3 equipment is a rare issue of agreement between the parties, and both parties find the method unsupported by the record. , Petitioner agrees with Vissagio's analysis regarding the improper substitution of the insured value of the equipment for the actual value of the equipment. However, and not unsuprisingly, Petitioner argues that the insured .value of the equipmentis actually less than its actual value. Petitioner argues that the appropriate value assigned to the business equipment should have been $487,714 which is the value listed in Vissagio's Valuation of Common Stock (Respondent Exhibit 11) Respondent argues that the $487,714 value is inaccurate because it was part of a bigger, more complete, valuation of the business that ultimately concluded that the business' value was zero. Petitioner, like the Appraiser, believes that Vissagio's insistence that the business is not worth anything is "an obvious attempt to deprive Shaffer of the value of his Twenty -Five Percent interest". (Appraiser's Report p. 15). Regardless of whether the bottom-line value was zero, Vissagio's still valued the business equipment at $487,414 on its valuation report and that should be viewed by this Court as an admission subject to the same standards as outlined above in Section B on Judicial Admissions. Lastly, in response to Vissagio's claims relating to unpaid wages and its unfunded pension obligation, Petitioner first believes that both are pretextual arguments to whittle his twenty-five percent interest down to nothing. Secondly, even if justified, Petitioner argues that any -claim for unpaid wages is barred by the statute of limitations. The statute of limitations for a claim of unpaid wages and benefits is three years under the Pennsylvania Wage Payment and Collection Law and four years under a breach of contract theory. (See 43 P.S. §§ 260.1-260.45; see also Haft v. United States Steel Corp., 451 A.2d 445 (Pa.Super.Ct. 1981)). Thus, the Lumadues' claim for back wages would be limited to a maximum of four years under a breach of contract theory, and to an amount significantly less than the approximately $1.4 million Vissagio's claims is owed. Respondent argues that the statute has not yet been tolled due to the fact that the Lumadues have not yet demanded their back wages. This position essentially allows the Lumadues, the majority shareholders, to "have their cake and eat it too" by allowing them to not make any demand on their 4 unpaid wages for decades so as to best advantage them in a valuation of their business and as the Appraiser suggested"deprive Shaffer as to the value of his Twenty -Five Percent Interest". IV. Conclusion. For the reasons outlined above, Petitioner requests that the Court to grant his exceptions and to find that: 1) Visaggio's had a value of $3,000,000 to $5,000,000 by the judicial admission of its President, Mr. Lumadue, and the value of Petitioner's 25% interest is $750,000. 2) In the alternative, assign a value of $487,714 for the business assets and $111,747 for the non-operating assets which would increase the total value of the business to $799,461 and Petitioner's 25% share to $199,865. Date: 5(I liAt MARTSON LAW OFFICES By: JC cc c,L} Hubert X. Gyl oy, Esquire Katie J. Maxwell, Esquire 10 East High Street Carlisle, PA 17013 (717) 243-3341 Attorneys for Petitioner Keith A. Shaffer 5 CERTIFICATE OF SERVICE I, Mary M. Price, an authorized agent for Martson Deardorff Williams Otto Gilroy & Faller, hereby certify that a copy of the foregoing Brief in Support of Exceptions was served this date by depositing same in the Post Office at Carlisle, PA, first class mail, postage prepaid, addressed as follows: Dated: James P. DeAngelo, Esquire McNees Wallace & Nurick, LLC 100 Pine Street P.O. Box 1166 Harrisburg, PA 17108-1166 MARTSON LAW OFFICES By 5 ry M. Price en East High Street Carlisle, PA 17013 (717) 243-3341 11.0.qX3 AUG ,6 2010 IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA IN RE: VISAGGIO'S, INC. NO. 2009-2122 PETITION OF KEITH A. SHAFFER, DISSENTING SHAREHOLDER MEMORANDUM OF LAW, FINDINGS OF FACT, AND CONCLUSIONS OF LAW OF VISAGGIO'S INC. James P. DeAngelo I.D. No. 62377 jdeangelo@mwn.com Dana M. Windisch I.D. No. 208718 dwindisch@mwn.com McNEES WALLACE & NURICK LLC 100 Pine Street P.O. Box 1166 Harrisburg, PA 17108-1166 (717) 232-8000 Attorneys for Respondent TABLE OF CONTENTS Page TABLE OF CITATIONS PROCEDURAL HISTORY 1 II. STATEMENT OF FACTS 1 A. Share Composition of Visaggio's 2 B. The Visaggio's Real Property 3 C. The Current Dispute Between The Parties 5 III. STATEMENT OF QUESTIONS INVOLVED 6 IV. ARGUMENT 6 A. As Of November 5, 2008, Visaggio's Stock Had No Value 6 1. The Visaggio's Real Property has a fair market value of $1,550,000 7 2. At the time of the merger, Visaggio's stock had no value 10 a. As of the date of the merger, the Real Property has a value of $1,550,000 11 b. Calculation error in the Adjusted Equity Method 11 c. The authorized but unpaid wages due and owing to Mrs. and Mr. Lumadue must be considered when valuing Visaggio's stock 11 d. $111,747 in assets cannot be included in the valuation of Visaggio's shares at the time of the merger 16 e. Unfunded Pension Obligation 16 V. CONCLUSION 17 APPENDIX A—VISAGGIO'S"PROPOSED FINDINGS OF FACT APPENDIX B—VISAGGIO'S PROPOSED CONCLUSIONS OF LAW TABLE OF CITATIONS Cases: Page Berman v. Meth, 258 A.2d 521 (Pa. 1969) 13 Bogosian v. Foerderer Tract Comm., Inc., 399 A.2d 408 (Pa. Super. 1979) 7 Cedarbrook Realty, Inc. v. Cheltenham Twp., 611 A.2d 335 (Pa. Commw. 1992) 7,9 Huntingdon Fin. Corp. v. Newtown Artesian Water Co., 659 A.2d 1052 (Pa. Super. 1995) 15 In re Glosser Brothers, Inc., 555 A.2d 129 (Pa. Super. 1989) 6 In re Main, Inc., 239 B.R. 281 (E.D. Pa. 1999) 13 In re S. Whitehall Twp., 394 A.2d 653 (Pa. Commw. 1978) 7,8 Nimick v. Shuty, 655 A.2d 132 (Pa. Super. 1995) 15 O'Connor Appeal, 452 Pa. 287, 304 A.2d 694 (1973) 6 Tri -Continental Corp. v. Battye, 74 A.2d 71 (Del. 1950) 6 Statutes: 15 Pa. C.S.A. §1579(d) 6 42 Pa.C.S.A. § 5525(7) 15 43 P.S. § 260.9a(g) 15 ii Respondent Visaggio's, Inc. ("Visaggio's"), by and through its attorneys, McNees Wallace & Nurick LLC, hereby submits this Memorandum of Law in support of its valuation of Visaggio's shares as of November 5, 2008: I. PROCEDURAL HISTORY On March 30, 2009, Petitioner Keith A. Shaffer ("Shaffer") instituted the above- captioned action by filing a Petition For Relief Pursuant To 15 Pa.C.S.A. § 1579. Thereafter, on April 17, 2009, Shaffer filed an Amended Petition. On May 5, 2009, Visaggio's filed Preliminary Objections to the Amended Petition. Visaggio's Preliminary Objections were never resolved by the Court. On June 1, 2009, the Court appointed William Duncan, Esquire, as Special Master in these proceedings, and charged Mr. Duncan with making a recommendation to the Court as to the value of Shaffer's Visaggio's stock. The parties engaged in written discovery, including the exchange of expert reports. No depositions were taken in this matter. On December 24, 2009, Visaggio's submitted its Prehearing Memorandum. Shaffer submitted his Prehearing Memorandum on December 28, 2009. On January 13 and 14, 2010, and June 4, 2010, hearings in this matter were conducted before Mr. Duncan. Mr. Duncan conducted a view of the Visaggio's Real Property on July 27, 2010. II. STATEMENT OF FACTS The facts as developed at the hearings in this matter are set forth in Visaggio's Proposed Findings of Fact (appendix A), together with citation to the record. The following summary is provided for the convenience of the Special Master and the Court. 1 A. Share Composition of Visaggio's On August 4, 1980, Visaggio's incorporated under the laws of Pennsylvania and began a restaurant and bar enterprise' located at 6990 Wertzville Road, Enola, PA 17025 (the "Real Property"). (Amended Petition For Relief Pursuant To 15 Pa.C.S.A. §1579 ("Amended Petition"), ¶ 1; January 14, 2010 Hearing Transcript ("Jan. 14 Transcript"), p. 211). At that time, Rosemary Lumadue ("Mrs. Lumadue") was President of Visaggio's and Keith A. -Shaffer ("Shaffer") was Vice -President. Mrs. Lumadue owned twenty-five percent (25%) of Visaggio's stock, William Lumadue, Sr. ("Mr. Lumadue") owned twenty-five percent (25%) of Visaggio's stock, and Shaffer owned the remaining fifty percent (50%) of Visaggio's stock. (Jan. 13 Transcript, p. 23; Jan. 14 Transcript, p. 229). Visaggio's stock is not publically traded. (June 4 Transcript, p. 342-343). In, early 1981, Shaffer sold half of his Visaggio's stock to Mr. Lumadue and Mrs. Lumadue for $5,600. (Jan. 13 Transcript, p. 39; Jan. 14 Transcript, pp. 229-232; Visaggio's Ex. 21). After the Lumadues' acquisition of Shaffer's stock, Mrs. Lumadue owned thirty-seven and half percent (37.5%) of the issued Visaggio's stock, Mr. Lumadue owned thirty-seven and half percent (37.5%), and Shaffer owned twenty-five percent (25%). (Visaggio's Ex. 21; Jan. 14 Transcript, pp. 231-232). Early in the company's history, strong disagreements arose between the parties, and Shaffer ceased to be actively involved in the operation of Visaggio's. (Jan 13. Transcript, p. 26; Jan. 14 Transcript, pp. 233-236). Further disagreements arose regarding the terms of Shaffer's withdrawal from the business; a dispute that was ultimately resolved by an April 20, 1987 Order of the Superior Court of Pennsylvania. (See Jan. 14 Transcript, pp. 236- 1 In 2002, Visaggio's expanded to include a banquette facility/catering business. (See Visaggio's Ex. 25). 2 237). The parties have not associated with each other since early 1981; Shaffer, however, remained a twenty-five percent (25%) shareholder in Visaggio's for many years. On November 5, 2008, Visaggio's, Inc. merged with Visaggio's Acquisition, Inc.2 (Amended Petition, 117). After the November 2008 merger, Mrs. Lumadue held 250 shares of the issued Visaggio's stock, Mr. Lumadue held 250 shares, and Mr. and Mrs. Lumadue, as husband and wife, held 250 shares. (See id.) B. The Visaggio's Real Property Visaggio's owns Real Property consisting of 5 acres in Cumberland County, which includes four improvements: a restaurant, a banquet facility, a motel, and a storage shed. (Visaggio's Exs. 5, 23; Shaffer Ex. A; Jan. 13 Transcript, pp. 62; see Jan. 14 Transcript, pp. 244, 267; June 4 Transcript, pp. 309-310). The Real Property does not have public sewer or public water and is not at a signalized intersection. (Shaffer Ex. A; Visaggio's Ex. 23; Jan. 14 Transcript, pp. 170, 249-250; June 4 Transcript, p. 309-311, 327-328). The restaurant, banquet facility,and motel are a single building with a shared heating system. (Jan. 13 Transcript, p. 77; Jan 14. Transcript, pp. 247-248, 267-268; June 4 Transcript, pp. 310,.313). In order to allow service of alcoholic beverages, Visaggio's holds a hotel liquor license from the Pennsylvania Liquor Control Board. The hotel license is not transferrable and has no market value. (Jan. 14 Transcript, pp. 219-220). At the time of the merger, the Property was encumbered with $1,559,992 in secured debt. (Visaggio's Exs. 6-7, 9-10, 25; Jan. 14 Transcript, pp. 175, 269-271). The Visaggio's motel has 12 motel units and 4 apartment efficiencies, and is not franchised. (Shaffer Ex. A; Visaggio's Ex. 23; Jan. 13 Transcript, pp. 73-74; Jan. 14 2 Visaggio's Acquisition, Inc. later changed its name to Visaggio's, Inc. For ease of reference, both the former entity and the current entity will be referred to as "Visaggio's." Transcript, p. 219; June 4 Transcript, pp. 312-313, 325). The motel is in fair to poor condition and has no amenities. (Visaggio's Exs. 16, 23; Shaffer Ex. A.; Jan. 13 Transcript, pp. 72-74; Jan. 14 Transcript, pp. 219, 242-244; June 4 Transcript, pp. 311-312). The Property is operated and maintained by Mr. and Mrs. Lumadue and their children, John Lumadue and William Lumadue, Jr. (Jan. 14 Transcript, pp. 210-213, 215- 218, 253-255). Visaggio's employs Mrs. Lumadue, Mr. Lumadue, John Lumadue, and William Lumadue, Jr. (Jan. 14 Transcript, pp. 179-186, 210-213, 215-218, 253-255). The Lumadue family is responsible for nearly all the duties and obligations attending a restaurant business. Mr. Lumadue cuts wood for heating the facility, maintains the Real Property, oversees the finances, answers the telephone and places reservations, is a back- up bar tender, bar back, is a server for banquet events, landscapes, has host duties, sets up menus, and occasionally helps with food preparation, among other things. (Jan. 14 Transcript, pp. 182, 210-213). Mrs. Lumadue's duties at Visaggio's include, but are not limited to, cooking, baking, occasionally cleaning the facility, planning and executing wedding events, planning and executing banquet events, decorating, sewing, planning of the Visaggio's menu, and provides all the recipes for Visaggio's. (Jan. 14 Transcript, pp. 182-183, 215-218). John Lumadue's duties at Visaggio's include, but are not limited to, the planning and execution of wedding events, the planning and execution of banquet events, management of the Visaggio's kitchen, general repairs and maintenance of the Property, payroll, and plumbing. (Jan. 14 Transcript, pp. 213, 216-217, 253-255). William Lumadue Jr.'s duties at Visaggio's include, but are not limited to, cooking, general repairs and maintenance on the. Property, and maintenance of the on-site sewage treatment facility. (Jan. 14 Transcript, p. 253). 4 C. The Current Dispute Between The Parties On July 2, 2007, Shaffer sent a demand letter ("Demand Letter") to Mrs. and Mr Lumadue seeking twenty (20) years worth of alleged putative dividends. The Demand Letter, however, did not contain an offer to sell Shaffer's Visaggio's stock to the Lumadues. Thereafter, on September 18, 2007, Mrs. and Mr. Lumadue offered to redeem Shaffer's shares of Visaggio's stock, an offer that was not responded to by Shaffer. Mr. and Mrs. Lumadue again offered to redeem Shaffer's shares of Visaggio's stock on January 23, 2008. Shaffer declined the offer. On October 22, 2008, a "Notice Of Special Meeting Of Shareholders" (the "Notice") was sent to Shaffer regarding the November 4, 2008 meeting of Visaggio's shareholders to vote upon the merger of Visaggio's, Inc. into Visaggio's Acquisition, Inc. (Amended Petition, IT 3), Included in the October 22, 2008 Notice was a proxy statement, which Shaffer returned to Visaggio's indicating that he would vote against the merger. (Id., ¶ 4). On November 4, 2008, the merger between Visaggio's, Inc. and Visaggio's Acquisition, Inc. was approved. (Id., ¶ 6). Upon approval of the merger, a notice was sent to Shaffer pursuant to 15 Pa. C.S.A. §1575 indicating that Shaffer must demand payment for the fair value of his Visaggio's shares. (Id., ¶ 7). On December 9, 2008, Shaffer demanded the fair value of his shares of Visaggio's stock. (Amended Petition, ¶ 10). In response, corporate counsel for Visaggio's notified Shaffer that they believed his shares to be worth thirty-five thousand dollars ($35,000). (Jan. 13 Transcript, pp. 27, 36; Visaggio's Ex. 14; Amended Petition, ¶ 9). By letter dated January 8, 2009, Shaffer notified Mr. and Mrs. Lumadue that he disagreed, and demanded five hundred thousand dollars ($500,000) for his shares of Visaggio's stock. (Visaggio's Ex. 13; Jan. 13 Transcript, p. 36; Jan. 14 Transcript, pp. 264-265; Amended Petition, ¶ 10). (Amended Petition, 7 10). Shaffer's demand of $500,000 for his 25 percent interest was premised on a value of $2,000,000 for Visaggio's. Shaffer's demand was made without any support.3 (See id.). III. QUESTION PRESENTED WHETHER, AS OF NOVEMBER 5, 2008, THE VALUE OF STOCK IN VISAGGIO'S WAS ZERO? Suggested Answer: Yes. IV. ARGUMENT A. As Of November 5, 2008, Visaggio's Stock Had No Value. Pursuant to 15 Pa. C.S.A. §1579(d), any dissenter to a merger is entitled to "...recover the amount by which the fair value of his shares is found to exceed the amount, if any, previously remitted, plus interest." The fair value of a minority shareholder's shares must be calculated as of the date of the merger. In re Glosser Brothers, Inc., 555 A.2d 129, 133 (Pa. Super. 1989). Under Pennsylvania law, the fair value of a dissenter's shares is determined by evaluating the "going concern" as opposed to the liquidation value. 1d., citing O'Connor Appeal, 452 Pa. 287, 304 A.2d 694 (1973). In evaluating.the "going concern," courts may properly examine the net asset value, actual market value, and investment value of the shares. Id. Further, courts may also consider "market value, asset value, dividends, earning prospects, the nature of the enterprise and any other facts which were known or which could be ascertained as of the date of the merger." Id. citing Tri -Continental Corp. v. Battye, 74 A.2d 71, 76 (Del. 1950). 3 At the hearing in this matter, Shaffer's own expert testified to three potential values for his 25% interest: $53,373, $224,867, or $142,590. (Shaffer Ex. B). 6 Applying these well settled principles of Pennsylvania law, the evidence presented established that Visaggio's stock had no value as of November 5, 2008. 1. The Visaqqio's Real Property has a fair market value of $1,550,000 "[T]he valuation of property is not an exact science and [] it is the fact finder's role to determine the weight to be accorded an expert's testimony in this area." Cedarbrook Realty, Inc. v. Cheltenham Twp., 611 A.2d 335, 340 (Pa. Commw. 1992). However, courts have recognized that the sales comparison approach is a viable and desirable method when evaluating real property. Id.; Boqosian v. Foerderer Tract Comm., Inc., 399 A.2d 408, 412 (Pa. Super. 1979). "The basic theory here is that if a similar property located in similar surroundings sold recently at some given price, that price would be relevant in determining the market value of the property being appraised." Bogosian, 399 A.2d at 412. When choosing comparables for the sales comparison approach, consideration should be given to the following factors: size, age, physical condition, location, neighborhood, extra amenities, date of sale, lot size, style of house, unique features and type of financing. Cedarbrook Realty, Inc., 611 A.2d at 345. Thus, when utilizing the sales comparison approach, an appraiser must consider similar properties. Further, when evaluating sales comparables for a motel, a court may examine a comparable of a franchised motel versus a non -franchised motel if the value of the franchise and its impact on the sale price of the motel are separated items. In In re S. Whitehall Twp., 394 A.2d 653, 655 (Pa. Commw. 1978), the court stated: On appeal to this Court, the taxpayer alleges the trial court erred as a matter of law in considering the value of another motel, known as Holiday Inn East, in an adjacent county as a "comparable sale," since the sale also included the transfer of personalty, a state liquor license and a franchise. We find both from a reading of the record of the testimony concerning the sale as well as the opinion of the court below that this 7 contention is without merit. The Township appraiser testified not only as to the total sale price of the other motel but also separated these items not connected with the realty in determining the market value of the property... Id. Thus, the actual value of a franchise must be clearly set forth and separated from the underlying value of the motel property. In the current matter, both Shaffer and Visaggio's utilized the sales comparison approach to evaluate the Visaggio's property4. (Shaffer Ex. A; Visaggio's Exs. 5, 18; Jan. 13 Transcript, pp. 74-77; June 4 Transcript, p. 317). Both parties generally agree on the value of the underlying land and the value of the restaurant, garage, and banquet facility. (See Visaggio's Ex. 18; Shaffer Ex. A). The parties, however, do not agree on the valuation of the motel, which Shaffer valued at $585,000. (Shaffer Ex. A). In his sale comparison evaluation of the Visaggio's motel, William F. Rothman ("Mr. Rothman") utilized three comparables: a Scottish Inn Motel, an Econo Lodge Motel, and a Rodeway Inn. (Shaffer Ex. A, pp. 30-38; Jan 13. Transcript, pp. 74-77). Unlike the Visaggio's motel, all three of these comparables have public sewer, public water, and are franchised. (Id.) The Scottish Inn Motel has 31 units, the Econo Lodge Motel has 37 units, and the Rodeway Inn has 43 units. (Id.) Both the Scottish Inn and the Rodeway Inn offer customers pools, and the Scottish Inn offers cable television, complimentary coffee and tea, and has a refrigerator and microwave in every room. (Shaffer Ex. A). According to Mr: Rothman, the price per unit for the Scottish Inn Motel is $32,484, for the Econo Lodge Motel is $36,008, and for the Rodeway Inn is $36,785. (Jan 13. Transcript, p. 75-77). 4 Shaffer also evaluated the Property through the cost approach, (Shaffer Ex. A); however, because the parties essentially agree on the Property valuation, other than the valuation placed on the motel, there is no need to detail Shaffer's cost approach. Visaggio's valued the Property through the cost approach as well, but only as a backup method. (June 4 Transcript, p. 317). 8 Mr. Rothman's chosen comparables do not support his valuation of the Visaggio's motel. When evaluating a property based on the sales comparison approach, the comparisons must be similar in "size, age, physical condition, location, neighborhood, extra amenities, date of sale, lot size..." Cedarbrook Realty, Inc., 611 A.2d at 345. All three of Mr. Rothman's comparables are larger than the Visaggio's motel, have amenities which the Visaggio's motel does not, are in a better condition than the Visaggio's motel, and are franchised. Furthermore, all three comparables are located in an area more likely to be frequented by off the street customers. In fact, the Scottish Inn Motel is located on Chocolate Avenue in Hershey, Pennsylvania, in the very heart of the Hershey area's attractions. The Visaggio's motel has 12 motel units and 4 apartment efficiencies, and is not franchised. (Shaffer Ex. A; Visaggio's Ex. 23; Jan. 13 Transcript, pp. 73-74; Jan. 14 Transcript, p. 219; June 4 Transcript, pp. 312-313, 325). The motel is in fair to poor condition and has no amenities. (Visaggio's Exs. 16, 23; Shaffer Ex. A.; Jan. 13 Transcript, pp. 72-73; Jan. 14 Transcript, pp. 219, 242-244; June 4 Transcript, pp. 311-312). Furthermore, the motel does not even have public water or public sewer. (Shaffer Ex. A; Visaggio's Ex. 23; see Jan. 14 Transcript, pp. 170, 249-250; June 4 Transcript, p. 309). And yet, when evaluating the per unit value of a Visaggio's motel unit, Mr. Rothman valued each unit at $36,562, a mere $285 per unit Tess than the highest adjusted price per unit of his comparables. (Jan. 13 Transcript, p. 77). According to Mr. Rothman, the per unit value of a Visaggio's motel unit is practically the same as that of a Rodeway Inn which has public sewer, public water, hotel amenities and is franchised. Such a position is untenable. Additionally, the Scottish Inn Motel and the Econo Lodge Motel were sold on August 1, 2007 and June 6, 2006, respectively. (Shaffer Ex. A). In the case of the Econo Lodge Motel, the sale of the property occurred over two years before the merger. Both the Econo Lodge Motel and the Scottish Inn Motel were sold prior to the economic crisis that developed in 2008, making these comparables an unreliable indication of what any similar property would have sold for in November 2008. Lastly, all three of Mr. Rothman's comparables are franchised 'enterprises. (Jan 13. Transcript, p. 77). Mr. Rothman did not separate in his report or in his testimony the value of the franchise versus the value of the underlying motel property. As such, the Court should not consider Mr. Rothman's comparables when trying to ascertain the value of the Visaggio's motel. For the reasons set forth above, Mr. Rothman's comparables are not sufficiently similar to the Visaggio's motel and should not be considered in this proceeding, making Mr. Rothman's entire appraisal and valuation of the Visaggio's property defective. Visaggio's real estate appraiser, Patrick Noone ("Mr. Noone"), presented a value for the Property of $1,550,000. (Visaggio's Exs. 5, 18; June 4 Transcript, pp. 313-314). Mr. Noone's testimony and opinion are consistent with the fair market value of $1,550,000 established by Cumberland County for real estate tax purposes, based on an assessed value of $1,308,450. (Visaggio's Ex. 1; Jan 14. Transcript, pp. 251-252). In addition, with the exception of Mr. Rothman's erroneous opinion on the value of the motel, Mr. Noone's opinion is not contested, thus, Mr. Noone's value of $1,550,000 for Visaggio's property should be accepted. 2. At the time of the merger, Visaggio's stock had no value Visaggio's engaged Mr. William Boles ("Mr. Boles") to value Visaggio's stock. (Visaggio's Exs.. 11, 17; June 4 Transcript, p. 335). Mr. Boles testified that the stock had no value. Id. Shaffer retained James A. Smeltzer ("Mr. Smeltzer") to review the valuation 10 completed by Mr. Boles. (Shaffer Ex. B; Jan. 13. Transcript, pp. 93-153). In valuing Visaggio's stock, Mr. Smeltzer stated that he agreed with Mr. Boles' valuation of Visaggio's stock, with the exception of four areas5: (1) the value of the Property; (2) a calculation error under the Adjusted Equity Method; (3) the inclusion of Mr. and Mrs. Lumadue's authorized but unpaid wages in the valuation proceeding; and (4) the exclusion of $111,747 in assets. (Shaffer Ex. B; Jan. 13 Transcript, pp. 98-101). Further, Mr. Smeltzer did not contest the need to consider the unfunded pension obligation owed by Visaggio's. These points are discussed below: a. As of the date of the merger, the Real Property has a value of $1,550,000 As noted in part A, supra, the parties were in basic agreement on the valuation of the Real Property, with the exception of the motel. Visaggio's incorporates part A of this Memorandum as if set forth in full, and avers that the Real Property had a fair market value of $1,550,000 at the time of the merger. b. Calculation error in the Adjusted Equity Method In his testimony, Mr. Boles admitted to inadvertently entering a deficit number of $148,000, as opposed to a deficit number of $119,465, when utilizing the Adjusted Equity Method of computation. (Shaffer Ex. B; June 4 Transcript, p. 364). Such an error, however, did not change Mr. Boles' ultimate opinion that Visaggio's stock had no value at the time of the merger. (June 4 Transcript, p. 364). c. The authorized but unpaid wages due and owing to Mrs. and Mr. Lumadue must be considered when valuing Visaggio's stock Both Mr. Boles and Mr. Smeltzer agreed that, at the time of the merger, the Property was encumbered with $1,599,992 in secured debt. (Visaggio's Ex. 11, Schedule 3; Shaffer Ex. B, p. 3, Jan. 14 Transcript, pp. 174-175, 225). 11 By special meeting of the director's of Visaggio's on March 1, 1981, the directors of Visaggio's granted Mr. Lumadue a salary of $30,000 a year and Mrs. Lumadue a salary of $50,000 a year, payable on demand. (Visaggio's Ex. 2; Jan. 14 Transcript, pp. 255-256). Over the years, the Lumadues' authorized salaries have increased pursuant to the Consumer Price Index. (Id.) However, because Mr. and Mrs. Lumadue did not take their full authorized salaries over a period of nearly 27 years, back salary began to accrue. (Visaggio's Ex. 12; Jan. 14 Transcript, pp. 179-182). Thus, at the time of the merger, Visaggio's owed Mr. and Mrs. Lumadue $1,398,323 in back wages. (Id.) In his testimony, Mr. Smeltzer takes the strained position that the authorized but unpaid wages to the Lumadues cannot be considered when valuing Visaggio's stock because: (1) the wages were not quantified in Visaggio's financial statements or the wages as quantified do not add up to $1,300,000; and (2) the wages authorized to the Lumadues are unreasonable. (Jan. 13 Transcript, pp. 109-124). Mr. Smeltzer's first argument is belied by his own testimony.. Mr. Smeltzer actually testified that the wages due and owing to the Lumadues are noted in Visaggio's financial statements, even if they were not quantified. (Jan. 13 Transcript, pp. 113-118). Mr. Smeltzer pointed out that the Visaggio's financial statements contain the following language: "4. Accrued wages. Accrued wages includes only the amount earned by employees after the final payroll of the year. It does not include any additional amounts for the officers, (who are entitled to authorized but unpaid salaries over several years) who are also major shareholders of the Corporation." (Shaffer Exs. C -G; Visaggio's Ex, 4; Jan. 13 Transcript, pp. 114, 117). In fact, the Visaggio's financial statements for the years ended December 31, 2007 and 2006, as well as the years ended December 31, 2007 and 2008, specifically state that the corporation owes the Lumadues approximately $1,300,000 in 12 unpaid wages. (Shaffer Ex. H; Visaggio's Ex, 4). Given this language, any argument that the wages are not due and owing or that they have been quantified in an amount less than $1,300,000 is completely without merit Further, Mr. Smeltzer's position that the approximately $1,300,000 in authorized but unpaid wages to Mr. and Mrs. Lumadue is unreasonable has no support under Pennsylvania law. Under Pennsylvania law, a plaintiff bears the burden of proving a salary remitted to a director and/or officer is unreasonable. Berman v. Meth, 258 A.2d 521, 522 •(Pa. 1969); In re Main, Inc., 239 B.R. 281, 293-94 (E.D. Pa. 1999). "In allegations alleging excessive compensation, the general rule is that '(A) salary must bear a reasonable relation to the officer's ability and to the quantity and quality of the services he renders.' Id. In determining if compensation is reasonable, a court may look to a variety of factors, including ability, services and time devoted to the company, difficulties involved, responsibilities assumed, success achieved, amounts under jurisdiction, corporate earnings, profits and prosperity, increase in volume or quality of business, and all other relevant facts and circumstances. Id. at 523. In his testimony, Mr. Smeltzer could give no particular reason for why he believed the salaries to Mr. and Mrs. Lumadue were unreasonable, other than to state that the "facts and financial facts of this case do not warrant it" and "..,there was no expectation of them being paid" and that the salaries were "unreasonably high compared to the industry norms..." (Jan. 13 Transcript, p. 122; June 4 Transcript; pp. 390-391). Mr. Smeltzer, however, did not perform any analysis that took into consideration Mr. and Mrs. Lumadue's ability, services and time devoted to the company, difficulties involved, responsibilities assumed, success achieved, amounts under jurisdiction, corporate earnings, profits and prosperity, increase in volume or quality of business, as required by Pennsylvania law. 13 (See Shaffer Ex. B; June 4 Transcript, pp. 396-397; Jan, 13 Transcript, pp. 118-123). Moreover, Mr. Smeltzer admitted he did not perform any study to determine if the authorized but unpaid wages to the Lumadues were reasonable. (Id.) Contrary to Mr. Smeltzer's untutored assertions, the authorized salaries of the Lumadues are more than reasonable given the scope of duties which the Lumadues perform for the corporation. Since 1980, the Lumadues have devoted all their time and efforts into developing the business. The Lumadues have assumed all responsibilities and performed every task necessary to run the restaurant, motel, and banquet facility. (Jan. 14 Transcript, pp. 182-183, 210-213, 215-218). In point of fact, the business of Visaggio's has consumed the Lumadues entire lives. As such, when analyzing the Lumadues' salaries under applicable Pennsylvania law, the authorized but unpaid salaries to the Lumadues are completely reasonable and must be considered when valuating Visaggio's stock. (See June 4 Transcript, pp. 359-361). Lastly, any argument that the authorized but unpaid wages to the Lumadues cannot be considered in this valuation proceeding because a wage claim by the Lumadues is barred by a statute of limitations is without merit. The notes from the March 1, 1981 special meeting of the directors of Visaggio's, wherein the Lumadues' salaries were authorized, specifically states that the wages are payable "on demand." (Visaggio's Ex. 2). -To date, the Lumadues have not made a demand for payment on their authorized but unpaid wages. (See Jan. 13 Transcript, p. 148). Pennsylvania law provides that: Except as provided for in subsection (b), the following actions and proceedings must be commenced within four years:...(7) An action upon a negotiable or nonnegotiable bond, note or other similar instrument in writing. Where such an instrument is payable upon demand, the time within which an action on it must be commenced shall be computed from the later of either demand or any payment of principal of or interest on the instrument. 14 42 Pa.C.S.A. § 5525(7); Nimick v, Shutv, 655 A.2d 132, 135 (Pa. Super. 1995). However, even if payment had been demanded and the statute of limitations began to accrue, which is expressly denied, the bar imposed by the expiration of the statute of limitations was removed by the corporation's acknowledgement of the debt due and owing to the Lumadues. Huntingdon Fin. Corp. v. Newtown Artesian Water Co., 659 A.2d 1052, 1054 (Pa. Super. 1995). Both the Visaggio's financial statements and Mr. Lumadue's testimony show a clear, distinct, and unequivocal acknowledgement of the authorized but unpaid wages as a debt that is an existing obligation of Visaggio's. (Shaffer Exs. C -G; Visaggio's Ex. 4; Jan. 13 Transcript, pp. 114, 117). There is no uncertainty regarding what debt is being referred to. See id. Further, the financial statements and Mr. Lumadues' testimony clearly show that the debt is consistent with a promise to pay on demand. As noted above, the document on which the debt is based makes it clear that Mr. and Mrs. Lumadue are entitled to their wages "on demand." (Visaggio's Ex. 2). Visaggio's clear and unequivocal acknowledgment of the debt removes any argument that the statute of limitations bars all or part of the debt Visaggio's owes to the Lumadues. The same result is compelled whether the wages owed to the Lumadues are analyzed under general contract law, Pennsylvania's Wage Payment and Collection Law. "No administrative proceedings or legal action shall be instituted under the provisions of this act for the collection of unpaid wages or liquidated damages more than three years after the day on which such wages were due and payable as provided in sections 3 and 5.1." 43 P.S. § 260.9a(g). Pursuant to the March 1, 1981 document, the Lumadues' wages become due and owing on demand; thus, the three year statute of limitations under the Pennsylvania Wage Payment and Collection Law would begin to accrue only after such a demand was made. Again, the Lumadues have made no demand for their unpaid wages. 15 The Lumadues' claim for accrued but unpaid wages remains viable and intact under Pennsylvania law, and the Lumadues could, at any time, make a demand for payment against the corporation. There is no question that Visaggio's owes that obligation for the services it received over many years. As such, the Lumadues authorized but unpaid wages must be considered when valuing Visaggio's stock. d. $111,747 in assets cannot be included in the valuation of Visaggio's shares at the time of the merger •In his testimony and opinion, Mr. Smeltzer asserted that $111,747 in securities must be added to the value of Visaggio's stock at the time of the merger. (Shaffer Ex. B; Jan. 13 Transcript, pp. 125-131). However, as plainly established by the testimony and exhibits, those assets had been liquidated and the proceeds used by the corporation to continue its operations before the time of the merger. This was clearly evidenced by Visaggio's financial statements, as explained by Visaggio's accountant Mr. James Lyons. (Visaggio's Exs. 18, 19; Jan. 14 Transcript, pp. 187-194, 258-261; June 4 Transcript, pp. 366-367; 370- 372; 394-396). In fact, Mr. Smeltzer could point to no documentation indicating that the $111,747 in assets were still on Visaggio's books at the time of the merger. (June 4 Transcript, p. 396). As such, the $111,747 in assets cannot be included in any valuation of Visaggio's shares at the time of the merger. e. Unfunded Pension Obligation Testimony and exhibits established that as of November 5, 2008, Visaggio's had a $560,000 unfunded pension obligation to its non -shareholder management employees, John Lumadue and William Lumadue, Jr. Mr. Boles testified that this obligation has to be considered in valuing the stock of Visaggio's. (June 4 Transcript, pp. 350-352, 365-366). Mr. Smeltzer did not contest this in his testimony. 16 V. CONCLUSION For the foregoing reasons, Visaggio's respectfully asks the Court to find: (A) As of November 5, 2008, the value of the Visaggios' Real Property was $1,550,000; (B) As of November 5, 2008, Visaggio's secured debt was $1,559,992; (C) As of November 5, 2008, Visaggio's owed an obligation of $1,398,323 to Mr. and. Mrs. Lumadue; (D) As of November 5, 2008, Visaggio's owed an unfunded pension obligation of $560,000; (E) As of November 5, 2008, Visaggio's did not hold $111,747 in securities as an asset because thosesecurities had been liquidated and the proceeds used in operations; and (F) As of November 5, 2008, Visaggio's stock had no value. McNEES WALLACE & NURICK LLC By 1 James P. DeAnge o I.D. No. 62377 jdeangelo@mwn.com Dana M. Windisch I.D. No. 208718 dwindisch@mwn.com 100 Pine Street P.O. Box 1166 Harrisburg, PA 17108-1166 (717) 232-8000 Dated: August,(, 2010 Attorneys for Respondent 17 VISAGGIO'S PROPOSED FINDINGS OF FACT I. The Parties 1. Visaggio's is a Pennsylvania corporation, which operates a restaurant and banquet business on real estate it owns at 6990 Wertzville Road, Enola, Cumberland County, Pennsylvania 17025 (the "Real Property"). (Amended Petition For Relief Pursuant To 15 Pa.C.S.A. §1579 ("Amended Petition"), ¶ 1). 2. Vissagio's was incorporated under the laws of Pennsylvania in 1980. (January 14, 2010 Hearing Transcript ("Jan. 14 Transcript"), p. 211). 3. Keith A. Shaffer ("Shaffer") is an adult individual residing at 1265 Ash Lane, Lebanon, Pennsylvania 17042-9606. (Amended Petition, ¶ 2; January 13, 2010 Hearing Transcript ("Jan. 13 Transcript"), p. 23). II. Share Ownership of Visaggio's 4. At the time Visaggio's was incorporated, Visaggio's had three shareholders: (1) Rosemary Lumadue ("Mrs. Lumadue") held 25% of Visaggio's shares; (2) William Lumadue, Sr. ("Mr. Lumadue") held 25% of Visaggio's shares; and (3) Shaffer held 50% of Visaggio's shares. (Jan. 13 Transcript, p. 23; Jan. 14 Transcript, p. 229). 5. In 1981, Shaffer sold 250 of his Visaggio's shares to Mr. and Mrs. Lumadue for $5,600. (Visaggio's Ex. 21; Jan. 13 Transcript, p. 39; Jan. 14 Transcript, pp. 229-232). 6. After the sale of the shares in 1981, Mrs. Lumadue held 37.5% of Visaggio's shares, Mr. Lumadue held 37.5 % of Visaggio's shares, and Shaffer held 25% of Visaggio's shares. (Visaggio's Ex. 21; Jan. 14 Transcript, pp. 231-232). 7. Visaggio's stock is not publically traded. (June 4 Hearing Transcript ("June 4 Transcript"), pp. 342-343). 8. Early in the company's history, strong disagreements arose between the parties, and Shaffer ceased to be actively involved in the operation of Visaggio's. (Jan 13. Transcript, p. 26; Jan. 14 Transcript, pp. 233-236). 9. On November 5, 2008, Visaggio's, Inc. merged with Visaggio's Acquisition, Inc.1 (Amended Petition, ¶ 7). 10. After the November 2008 merger, Mrs. Lumadue held 33.3% of Visaggio's stock, Mr. Lumadue held 33.3% of Visaggio's stock, and Mr. and Mrs. Lumadue, as husband and wife, held 33.3% of Visaggio's stock. Mr. Shaffer no longer owned any shares. See id. III. Visaggio's Business 11. Visaggio's is the Lumadue family business; it is operated through the efforts of Mr. and Mrs. Lumadue and their children, John Lumadue and William Lumadue, Jr. (Jan. 14 Transcript, pp. 210-213, 215-218, 253-255). The Lumadue family has run Visaggio's since 1980. (Jan. 14 Transcript, pp. 210-218, 221-222, 253-255). 12. Visaggio's is dependent on the efforts of the Lumadue family to remain in business. (Jan. 14 Transcript, pp. 210-218, 221-223, 253-255). 13. Visaggio's employs Mrs. Lumadue, Mr. Lumadue, John Lumedue, and William Lumadue, Jr. (Jan. 14 Transcript, pp. 179-186, 210-213, 215-218, 253-255). 14. Mr. Lumadue's duties at Visaggio's include, but are not limited to, cutting wood for the heating of the facility, maintaining the Real Property, overseeing the finances, answering the telephone and placing reservations, back-up bartender, bar back, server for banquet events, landscaping, host duties, menu set up, and occasional food preparation. (Jan. 14 Transcript, pp. 182, 210-213). 1 Visaggio's Acquisition, Inc. later changed its name to Visaggio's, Inc. For ease of reference, both the former entity and the current entity will be referred to as "Visaggio's." 2 15. Mrs. Lumadue's duties at Visaggio's include, but are not limited to, cooking, baking, occasionally cleaning the facility, planning and executing wedding events, planning and executing banquet events, decorating, sewing, planning of the Visaggio's menu, and providing all the recipes for Visaggio's. (Jan. 14 Transcript, pp. 182-183, 215-218). 16. John Lumadue's duties at Visaggio's include, but are not limited to, the planning and execution of wedding events, the planning and execution of banquet events, management of the Visaggio's kitchen, general repairs and maintenance of the Property, payroll, and plumbing. (Jan. 14 Transcript, pp. 213, 216-217, 253-255). 17. William Lumadue Jr.'s duties at Visaggio's include, but are not limited to, cooking, general repairs and maintenance on the Property, and maintenance of the on-site sewage treatment facility. (Jan. 14 Transcript, p. 253). 18. The compensation and benefits provided to the Lumadue family are not unreasonable. (See June 4 Transcript, pp. 359-361). IV. Valuation of the 25 Percent Interest Shaffer Held In Visaggio's 19. On or about November 11, 2008, Shaffer was notified by counsel for Visaggio's that, pursuant to 15 Pa.C.S.A. § 1575, he must demand payment in order to receive the fair value of his Visaggio's stock. (Amended Petition, ¶ 7). 20. On or about December 9, 2008, Shaffer demanded the fair value of his Visaggio's shares. (Amended Petition, ¶ 8). 21. Although Visaggio's believed the value of Shaffer's interest was zero, Visaggio's responded to Shaffer's demand by offering $35,000 as value of Shaffer's 25% interest in a good faith attempt to avoid further controversy. (Visaggio's Ex. 14; Jan. 13 Transcript, pp. 27, 36; Amended Petition, ¶¶ 9-10). 22. Shaffer responded to Visaggio's offer by demanding $500,000 for his 25% share of Visaggio's. (Visaggio's Ex. 13; Jan. 13 Transcript, p. 36; Jan. 14 Transcript, pp. 3 264-265; Amended Petition, ¶ 1 0 ) . Shaffer's demand of $500,000 for his 25 percent interest was premised on a value of $2,000,000 for Visaggio's. Shaffer's demand was made without any support. (See id.). 23. Shaffer refused to accept Visaggio's $35,000 offer and instead instituted this litigation. (See id.). A. Visaggio's Real Property 24. The improvements to the Real Property include a restaurant, a banquet facility, a motel, and a storage shed. (Jan. 13 Transcript, p. 62; see Jan. 14 Transcript, pp. 244, 267; June 4 Transcript, p. 310). 25. The Real Property consists of 5 acres in Cumberland County. (Visaggio's Exs. 5, 23; Shaffer Ex. A; Jan. 13 Transcript, p. 62; Jan. 14 Transcript, p. 267; June 4 Transcript, p. 309). 26. The Real Property does not have public sewer. (Shaffer Ex. A; Visaggio's Ex. 23; Jan. 14 Transcript, pp. 170, 249-250; June 4 Transcript, p. 309). 27. The Real Property does not have public water. (Shaffer Ex. A; Visaggio's Ex. 23; see Jan. 14 Transcript, pp. 170, 249-250; June 4 Transcript, p. 309). 28. The Real Property is not at a signalized intersection. (See Shaffer Ex. A; Visaggio's Ex. 23; June 4 Transcript, pp. 310-311, 327-328). 29. The restaurant, banquet facility, and motel are a single building. (Jan. 13 Transcript, p. 77; Jan 14. Transcript, pp. 267-268; June 4 Transcript, p. 310). • 30. The restaurant, banquet facility, and motel share a heating system. (Jan 14. Transcript, pp. 247-248; June 4 Transcript, pp. 310, 313). 4 31. To allow the service of alcoholic beverages at Visaggio's, it holds a hotel liquor license from the Pennsylvania Liquor Control Board. (Jan. 14 Transcript, pp. 219- 220). The hotel liquor license is not transferrable and has no market value. (Jan. 14 Transcript, pp. 219-220, 260-261). 32. The assessed value of the Real Property as of November 5, 2008 was $1,308,450. (Visaggio's Ex. 1; Jan 14. Transcript, pp. 251-252). 33. As of November 5, 2008, the Real Property had a fair market value of $1,550,000. (Visaggio's Exs. 5, 18; June 4 Transcript, pp. 313-31.5). B. The Visaggio's Motel 34. The motel is not franchised. (Jan. 13 Transcript, p. 73; Jan. 14 Transcript, p. 219; June 4Transcript, pp. 312-313). 35. The motel is in fair to poor condition. (Visaggio's Exs. 16, 23; Shaffer Ex. A.; Jan. 13 Transcript, p. 72; Jan. 14 Transcript, pp. 219, 242-244; June 4 Transcript, pp. 311- 312). 36. The Visaggio's motel has 12 motel units and 4 apartment efficiencies. (Shaffer Ex. A; Visaggio's Ex. 23; Jan. 13 Transcript, pp. 73-74; June 4 Transcript, p. 325). 37. The Visaggio's motel has no amenities. (Jan. 13 Transcript, pp. 73-74). 38. The Visaggio's motel has no market value and could not be sold independent of the restaurant and banquet facilities. (June 4 Transcript, p. 310). 39. The Visaggio's motel generates no measurable revenue for Visaggio's. (Jan. 14 Transcript, pp. 260-261). 40. The Visaggio's motel exists solely to support the hotel liquor license. (Id.) 41. Petitioner Shaffer's value for the Visaggio's motel is not accepted because it is based upon a comparison of the Visaggio's motel to properties which are not comparable. (Shaffer Ex. A.; Visaggio's Ex. 23; Jan. 13 Transcript, pp. 74-75, 77-79) 5 42. The comparisons upon which Shaffer valued the Visaggio's motel were all franchised motels. (Shaffer Ex. A.; Visaggio's Ex. 23; Jan. 13 Transcript, pp. 74-75, 77). 43. The comparisons upon which Shaffer valued the Visaggio's motel all had public sewer and public water. (Shaffer Ex. A.; Visaggio's Ex. 23; Jan. 13 Transcript, pp. 78-79). 44. The comparables with which Shaffer valued the Visaggio's motel have 31, 37, and 43 units, respectively, and offer various amenities to their guests. (Shaffer Ex. A; Visaggio's Ex. 23; Jan. 13 Transcript, pp. 74-75). C.. Visaggio's Obligations 45. As of the date of the merger, Visaggio's owed $1,599,992 in secured debt, which was secured against its Real Property and other assets. (Visaggio's Exs. 6-7, 9-11, 25; Shaffer Ex. B; Jan. 14 Transcript,, pp. 174-175, 225, 269-271). 46. As of the date of the merger, Visaggio's owed Mr. and Mrs. Lumadue $1,398,323 in authorized but unpaid wages. (Visaggio's Exs. 2, 12; Shaffer Exs. C -G; Jan. 13 Transcript, pp. 109-118; 146-147; Jan. 14 Transcript, pp. 179-182, 201-205, 207-208, 255-256). 47. Visaggio's has an unqualified pension plan for its non -shareholder management employees, John Lumadue and William Lumadue, Jr. As of the date of the merger, Visaggio's unfunded obligation related to the pension plan was $560,000. (Shaffer Ex. B; Visaggio's Ex. 3; Jan. 13 Transcript, pp. 98-101; Jan. 14 Transcript, pp. 184-186, 256-258; June.4 Transcript, pp. 349-352, 365-366). D. Summary 48. At the time of the merger, Visaggio's Real Property had a value of $1,550,000. 6 49. At the time of the merger, Visaggio's owed $1,599,992 in secured debt secured against its Real Property and other assets. 50. At the time of the merger, Visaggio's owed Mr. and Mrs. Lumadue $1,398,323 in authorized but unpaid wages. 51. At the time of the merger, Visaggio's owed an unfunded pension obligation in the amount of $560,000. 52. By November 5, 2008, the $111,747 in assets, as reflected on earlier Visaggio's financial statements, had been liquidated and the proceeds expended to support the operation of the business. (Visaggio's Exs. 2, 4; Shaffer Ex. H; Jan. 14 Transcript, pp. 187-197, 258-261; June 4 Transcript, pp. 366-367; 370-372; 394-396). 53. Based upon the evidence of record, the proper valuation method of Visaggio's stock can be summarized as follows: Valuation Methods Capitalized Earnings Sales Method Invested Capital to Sales Adjusted Equity Method Value before adjustments 101,743 487,714 (119,465) Value of goodwill 6,586 Real estate value 1,550,000 1,550,000 (Less book value) (1,216,763) (Less secured debt) (1,599,992) (Less accrued, but unpaid, wage obligation) (1,398,323) (1,398,323) (1,398,323) (Less unfunded pension obligation) (560,000) (560,000) (560,000) Value of 100 percent of stock (1,856,580) (1,520,601) (1,737,964) 7 Value of 25 percent of stock (464,145) (380,150) (434,491) Summary of value 0 0 0 54. As of November 5, 2008, Visaggio's stock had no value. 8 P VISAGGIO'S PROPOSED CONCLUSIONS OF LAW 1. The relevant date of inquiry regarding the value of Shaffer's stock is November 5, 2008, i.e., the date of the merger. In re Glosser Brothers, Inc., 555 A.2d 129, 133 (Pa. Super. 1989). 2.Under Pennsylvania law, the fair value of a dissenter's shares is determined by evaluating the "going concern" as opposed to the liquidation value. In re Glosser Brothers, Inc., 555 A.2d 129, 133 (Pa. Super. 1989), citing O'Connor Appeal, 452 Pa. 287, 304 A.2d 694 (1973). 3. In evaluating the "going concern," courts may properly examine the net asset value, actual market value, and investment value. Id. 4. In evaluating the fair value of a dissenter's shares, courts may also consider "market value, asset value, dividends, earning prospects, the nature of the enterprise and any other facts which were known or which could be ascertained as of the date of the merger." Id. citing Tri-Continental Corp. v. Battye, 74 A.2d 71, 76 (Del. 1950). 5. A minority shareholder discount is not appropriate under the facts of this case, and no such discount was applied by Visaggio's business valuation expert, Mr. William Boles. 6. At the time of the merger, Visaggio's Real Property was valued at $1,550,000. 7. Visaggio's secured debt of $1,599,992 must be deducted from the value of Visaggio's at the merger date. 8. Visaggio's obligation of $1,398,323 in authorized but unpaid wages due to Mr. and Mrs. Lumadue must be deducted from the value of Visaggio's stock at the time of the merger. 9. Visaggio's unfunded pension obligation in the amount of $560,000 must be deducted from the value of Visaggio's stock at the time•of the merger. 10. Shaffer has failed to sustain his burden of proving that compensation to the Lumadue family was excessive or unreasonable. Berman v. Meth, 258 A.2d 521, 522 (Pa. 1969); In re Main, Inc., 239 B.R. 281, 293-94 (E.D. Pa. 1999). 11. By November 5, 2008, the $111,747 in marketable securities reflected on earlier Visaggio's financial statements, had been liquidated and the proceeds expended to support the operation of the business. As such, those securities cannot be considered in valuing the Visaggio's shares as of the merger date. 12. The motel has no value, other than for Visaggio's to maintain its liquor license. (June 4 Transcript, p. 318). 13. The comparables upon which Shaffer valued the Visaggio's motel under the sales comparison approach are not sufficiently similar to the Visaggio's motel and thus cannot be considered. 14. As of November 5, 2008, Visaggio's stock had no value. 2 CERTIFICATE OF SERVICE The undersigned hereby certifies that a true and correct copy of the foregoing document was served by first class U.S. mail upon the following: Kathryn Simpson, Esq. Mette, Evans & Woodside 3401 North Front Street P.O. Box 5950 Harrisburg, PA 17110 Dana M. Windisch Attorneys for Visaggio's Inc. Dated: August U, 2010 CERTIFICATE OF SERVICE I certify that on this date I am serving a true and correct copy of the foregoing document upon the Petitioner by first-class mail addressed as set forth below, and also by email. MARTSON LAW OFFICES Hubert X. Gilroy Katie J. Maxwell Ten East High Street Carlisle, PA 17013 Attorneys for Petitioner, Keith A. Shaffer MCNEES WALLACE & NURICK LLC B, Y..� mes P. f% Angelo .D. No. 6 77 jdeangelo@mwn.com Dana Windisch Chilson I.D. No. 208718 dchilson@mwn.com 100 Pine Street P.O. Box 1166 Harrisburg, PA 17108-1166 (717) 232-8000 Attorneys for Respondent, Visaggio's, Inc. Dated: January 8, 2015 IN RE: VISAGGIO'S INC. : IN THE COURT OF COMMON PLEAS OF : CUMBERLAND COUNTY, PENNSYLVANIA PETITION OF KEITH A. SHAFFER DISSENTING SHAREHOLDER NO. 09-2122 CIVIL IN RE: MOTION FOR SUPPLEMENTATION OF TRIAL COURT RECORD ORDER AND NOW, this !40' day of January, 2015, argument on Visaggio's Motion for Supplementation of Trial Court Record is set for Friday, February 6, 2015, at 2:00 p.m. in Courtroom Number 4, Cumberland County Courthouse, Carlisle, PA. BY THE COURT, James DeAngelo, Esquire 100 Pine Street P. O. Box 1166 Harrisburg, PA 17108-1166 For Visaggio's Inc. Hubert X. Gilroy, Esquire 10 East High Street Carlisle, PA 17013 For Keith A. Shaffer :rim ies /Qat LC_ //AVM'