Former shareholders of San Antonio's Broadway Bancshares who claim they were shortchanged in a subchapter S conversion will finally have their day in court.

A Bexar County, Tex., court has set a trial date of April 3 for a shareholder lawsuit that has been pending since 1997, when the banking company was converted to a tax-advantaged S corporation. The former shareholders argue that the $67 at which they were forced to sell their shares was less than half of what they were worth.

But Broadway Bancshares says the plaintiffs' per-share estimate, $135, is far too high and assumes an unrealistic takeover premium. "They picked that figure out of thin air," said Pat Kennedy Jr., a partner with Kennedy, Baris & Lundy who is representing company in the case.

Since the banking company was never put up for sale, it makes no sense to apply a takeover premium to its valuation, Mr. Kennedy said. Three independent appraisals were performed, he said, with the per-share estimates ranging from $59 to $67. In addition, a court-appointed appraiser valued the shares at $62.

"The plaintiffs have a normal, statutory right to bring this complaint," Mr. Kennedy said, but "the company has gone above and beyond the call of what was necessary."

Paul Francis, a partner with Baker & Stetler LLP who is representing the shareholders, was not available for comment.

S corporations are exempt from federal income taxes. Instead they transfer the burden to shareholders, who pay taxes on their shares of the profits.

The Small Business Job Protection Act of 1996 let banks become S corporations, and 1,309 had done so by Feb. 10, according to the American Bankers Association.

But an S corporation cannot have more than 75 shareholders, and many small banks have bought out investors to meet that requirement.

Broadway reduced its shareholder total from around 400 to 20 by making those with 10,000 or fewer shares accept the $67 buyout. Few shareholder lawsuits have resulted from valuation disputes in such conversions, said Mark Baran, senior tax counsel at the ABA. He said he knew of only one similar case - in New Jersey, where shareholders sued Amboy National Bank of Old Bridge after its conversion.

A court sided with the investors, but the ruling has been appealed.

Amboy officials would not discuss the case.

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