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and related equipment. PASEL acquired its 67-percent ownership
interest in KHB as partial consideration for a $544,000 loan that
it made to KHB to facilitate KHB’s leveraged buy-out of Gandy’s.3
The other 33-percent ownership interest in KHB was held by its
president and director, Steven K. Bauer (Bauer). KHB, which had
no assets other than its ownership interest in Gandy’s, then took
Gandy’s name. Consequently, PASEL and Bauer then held ownership
interests in Gandy’s of 67 percent and 33 percent, respectively.
KHB acquired Gandy’s through the issuance of $5,040,000 in
Macon-Bibb County Industrial Revenue Bonds (the Gandy’s bonds).
The underwriter of the Gandy’s bonds was Merchant Capital, which,
as previously described, was a wholly owned subsidiary of PASEL.
In 1988 and 1989, petitioner and PASEL made separate loans
to Gandy’s totaling over $250,000. Bauer, who was then Gandy’s
president, cosigned for the loans in his individual capacity.
The loans were not repaid, and judgments were entered against
Bauer, resulting in the transfer to PASEL of Bauer’s ownership
interest in Gandy’s.4 At some time not specified in the record,
3 On Dec. 17, 1987, Philip A. Sellers & Co., Inc. (PASEL),
lent $544,000 to Kenneth H. Bauer & Associates (KHB), pursuant to
a promissory note, bearing 11 percent interest, with principal
and accrued interest payable in two installments on Mar. 17,
1988, and Dec. 17, 1988. On July 1, 1988, this loan was repaid
in full.
4 On June 24, 1988, petitioner lent $150,000 to Gandy’s
Industries, Inc. (Gandy’s) pursuant to a promissory note, payable
in 60 days with 11 percent interest. The note is signed by
(continued...)
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