Opinion ID: 2029197
Heading Depth: 1
Heading Rank: 2

Heading: Transfer of Company Equity Ownership from Washington Associates to Marshall.

Text: In the summer of 1974, Marshall, with Mr. Jacobs's help, engaged in a second program of restructuring the ownership of the company's stock. Marshall had learned during the previous year of the importance, in certain circumstances, of having out-right ownership of two-thirds of the company's stock. Obtaining ownership of two-thirds of the company's stock was one of Marshall's goals in instituting the second program of restructuring. In addition, Marshall wanted to increase the percentage of stock owned by persons active in the company's business and to decrease the percentage of stock owned by individuals or entities who were not active in the company's management. Mr. Jacobs entered negotiations which led to the company's acquisition of equity interests from two shareholders. The company paid $3.60 per share for one shareholder's interests and $4.00 per share for that of the other. The master found the prices paid for the stock did not reflect the market value of the stock, as they were tied to other contractual obligations. The repurchases were approved by a unanimous vote of the board of directors. After considering the effect of these repurchases, Marshall and Mr. Jacobs calculated that approximately 3,415 additional shares of stock would have to be redeemed in order to achieve the two-thirds ownership which Marshall wanted. Marshall wanted Mr. Jacobs to arrange for the redemption of the desired number of shares from those held by Washington Associates partners who were not actively involved in the management of the company's business. Marshall and Mr. Jacobs then discussed the appropriate way to fix a price per share to be used for the planned redemption of the shares from Washington Associates and two former company employees. Marshall and Mr. Jacobs did not consider the company's repurchases from the other shareholders relevant, since the negotiations surrounding those transactions involved considerations not germane in attempting to place a value on the stock. Rather, Marshall and Mr. Jacobs set an over-all value for the company of $600,000 based on the company's financial statements. This figure was actually a low valuation figure because the company was using a very high set of depreciation figures to reflect a large amount of equipment it had recently purchased. Based on the $600,000 figure, Marshall and Mr. Jacobs arrived at a $12 per share price to be paid for the shares in question. Mr. Jacobs then attempted to obtain the redemption of the needed shares of stock from some of his Washington Associates partners. Mr. Jacobs explained to his partners the way in which he and Marshall had arrived at the $12 per share figure but did not attempt to negotiate the price with his partners. Eventually some shareholders agreed to redeem 3,415 shares at the $12 per share price. As a part of the inducement to redeem their shares, Mr. Jacobs and another partner transferred to these redeeming shareholders, for no consideration, the beneficial interest in certain of their own shares of the company's stock. Marshall was told about this transfer of beneficial interest but it was not recorded in the company's books. The board of directors unanimously authorized this redemption at $12 per share. Neither Mr. Jacobs nor any partner in the firm ever advised Marshall or the company to obtain independent legal advice concerning this redemption. After the redemption Marshall owned 65.055% of the company's outstanding shares.