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Village ran the daily operations and the management company
provided sales and management services. Petitioner was managing
partner of the partnership, president of FMS, vice president of
the management company, and president of Bentley Village.
In July 1985, Smith and Fowler used their combined voting
power to remove petitioner from his managerial positions and
exclude him from all further business activities. In addition,
Smith and Fowler transferred the contracts held by the management
company to Constellation Services, Inc., an entity controlled by
Smith and Fowler. In response, in 1987, petitioner filed a
lawsuit, against Smith and Fowler alleging civil theft,
conversion of assets, and embezzlement.
The lawsuit settled pursuant to an agreement, dated January
12, 1989 (1989 agreement). As part of the 1989 agreement,
petitioner received $200,000. During settlement negotiations,
the parties agreed that petitioner would either sell his interest
to Smith and Fowler or purchase Smith and Fowler’s interests. To
effect the change in ownership of the partnership and the other
entities, the 1989 agreement provided the following options: (1)
Petitioner had until September 30, 1989, to purchase Smith and
Fowler’s interests for $8 million (i.e., $4 million each); (2)
Smith and Fowler could, prior to September 30, 1989, terminate
petitioner’s option by purchasing petitioner’s interest for $4
million; or (3) if petitioner did not exercise his option to
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