Opinion ID: 197195
Heading Depth: 2
Heading Rank: 3

Heading: The Repurchase of the Ansin Interest and the IPO

Text: 22 The original investors in River Oaks had hoped, from the beginning, eventually to take the company public. During the first quarter of 1992, the company took the first step of talking to an investment banker about a public offering. Breck Walker, a managing director of J.C. Bradford & Co., a Nashville investment bank, visited River Oaks several times during the first half of 1992, to evaluate the company's prospects as an IPO candidate. 23 These contacts culminated in an April 23, 1992 meeting in Nashville between the River Oaks management, including Keenum and Simons, and the J.C. Bradford commitment committee. 3 At the meeting, River Oaks' value was discussed and, according to the notes of a J.C. Bradford analyst, Keenum stated that a value of $25 million was about right. Analyses prepared by J.C. Bradford for internal use projected a range of values from $16.3 million to $31 million, depending on the assumptions used, and similar valuations were discussed with River Oaks personnel. 24 Shortly thereafter, J.C. Bradford determined that, given all the circumstances, including market conditions, River Oaks was not a candidate for an IPO in 1992. J.C. Bradford advised River Oaks to wait until the end of 1992 or early 1993 to see if the company met its projections before proceeding further. 25 At approximately the same time, April 1992, Larry Ansin learned that he had a brain tumor. After his diagnosis, Ansin asked Patrick Maraghy, his tax planner, to act as an intermediary in his financial dealings. Ansin continued to make his own decisions. 26 In July 1992, Walter Billingsley, the River Oaks controller, and Simons contacted Maraghy about refinancing River Oaks' debt. Ansin, like the other original shareholders, had previously signed personal guarantees for bank loans to River Oaks; now, the Bank of Mississippi wanted another personal guarantee from Ansin for $550,000 of new financing. Maraghy communicated the request to Ansin, who declined to provide new guarantees because he was very ill and because he was no longer a shareholder of River Oaks. 27 Through August and into September of 1992, Simons continued to call Maraghy frequently, pressuring him to get Larry Ansin to reconsider his decision. At no time did Simons tell Maraghy that the bank had agreed, on August 5, 1992, to proceed with the refinancing without a new guarantee from Larry Ansin. Instead, Simons represented that the company would have problems without the new Ansin guarantee, and that people would be thrown out of work. In early September, Simons asked if Harold Ansin would sign a personal guarantee, but Harold Ansin declined. 28 In mid- to late-September, Simons called Maraghy and asked if the Ansins would be willing to sell their stock back to River Oaks so that someone else could purchase it and provide the guarantee. The Ansins agreed, believing that the sale would help Simons obtain the needed financing. 29 On October 19, 1992, Keenum called Maraghy to discuss an offer of $300,000 for the Ansin River Oaks Furniture and R-O Realty shares. Keenum told Maraghy that River Oaks had recently bought out Keith Franklin, the only other nonmanagement shareholder, for $60,000 per 1% interest, indicating that $300,000 was a fair price for the Ansin's 4% interest in River Oaks. Keenum also told Maraghy that the R-O Realty shares were valueless, as R-O Realty's properties were heavily encumbered with debt. 30 The Ansins agreed to the sale, believing that the price was fair and that they were accommodating Simons' need for bank financing. Simons wrote to Maraghy, thanking him for helping me resolve this problem. 4 The sale of the Ansin shares for $300,000 was closed in November 1992. 31 In board meetings on November 19, 1992, and December 1, 1992, the directors of River Oaks authorized the resale of the Ansin River Oaks shares, for the same price River Oaks had paid, to Keenum, Billingsley, and other original River Oaks investors. The Board had already authorized the resale of the Ansin R-O Realty shares to Keenum, Simons and other insiders on September 1, 1992, even though the repurchase offer had not yet been made. Everyone purchasing Ansin shares was familiar with the IPO discussions with J.C. Bradford. 32 Keenum and Simons acknowledge that, during the repurchase discussions, they never told Maraghy about the meetings with J.C. Bradford or about the prospect of restarting IPO discussions in early 1993. Although there were no ongoing negotiations in November 1992, Billingsley testified that River Oaks' management knew by October or November 1992 that the company would meet its sales projections for 1992 and so would meet the condition set by J.C. Bradford for following up on the IPO. During a conference call on December 7, 1992, less than two weeks after the Ansin repurchase, Ron Ashby, River Oaks' outside auditor, discussed the impact of an IPO on River Oaks' accounting for employee loans with Keenum and other River Oaks personnel. Ashby's notes, made in the month or two prior to that call, indicate that River Oaks was looking at an IPO in July or August 1993. 33 Simons testified that, in one phone conversation in early 1992, he told Larry Ansin that River Oaks had made initial contact with an unspecified investment banker, and that Larry Ansin thought going public was a great idea. However, Harold Ansin, Maraghy, and Susan Ansin, Larry's wife, all testified that Larry Ansin never mentioned the possibility of an IPO, even though they all stated that Larry discussed business with them regularly. 34 The River Oaks board approved an IPO on March 1, 1993. Maraghy first learned that an IPO was being planned from a June 1993 newspaper article. By this time, Larry Ansin had died. 35 River Oaks went public on August 26, 1993 for $12 per share. As part of the transaction, River Oaks effected a 28.8 for 1 stock split on June 23, 1993. This meant that the Ansins' 7,500 shares would have become 216,000 shares. Additionally, R-O Realty was merged into River Oaks furniture, and the R-O Realty shareholders received $1.2 million of River Oaks stock. From the proceeds of the offering, River Oaks distributed $2,465,000 of previous earnings to its pre-IPO shareholders. 36 Finally, the plaintiffs learned from the prospectus of the existence of River Wood Products, Inc. River Wood had been established in 1991 to produce furniture frames for River Oaks. Although there were no significant financial benefits to setting up River Wood as a separate corporation, a 1991 memo from Ashby indicated that a political reason for setting up ... separate corporations would be to exclude certain current River Oaks shareholders. Harold Ansin was one of the shareholders excluded. At the time of the IPO, River Wood shareholders received shares of River Oaks Furniture stock. 37 At trial, plaintiffs' expert testified that if the Ansins had held 7,500 shares prior to the IPO and then sold them at the end of the restricted period, they would have received a total of $4,179,140. This figure included proportional allocations of River Oaks Furniture shares for the Ansin R-O Realty shares and for a hypothetical 7.5% interest in River Wood Products. It also included a share of the S-corporation distribution.