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Discussion in 'Beer News & Releases' started by makalarch, Jan 9, 2019.
Yeah, but the good news is that eventually things got better between them. Hopefully this will repeat itself in this current situation.
This. It is certainly possible that the agreement stated that Tired Hands had the right to buy back these shares after 5 years at 1.5x the original investment. While TH is definitely worth much more than that, if the agreement states this, they are within their legal rights to enact this clause.
I think the bigger issue is if they reported yearly profits, but made no distribution of such profits to shareholders (especially if required to do so in their agreement). However, it is also possible that despite the success and value of the company, and, no doubt, cash flow, they did not report large net profits due to accounting costs involved in reinvestment in growth (e.g., interest on loans, depreciation on purchased equipment, etc. being deducted from earnings).
So I agree that we will not really know the truth, but the court will decide whether what TH did is legal. Whether it is NICE- that's another story.
I must admit that is where the bulk of my concerns are. Over the past 5-6 years Tired Hands brought in a ton of revenue and if they decided to use that money for thinks like lavish trips, capital upgrades to the multiple facilities (which results in a more highly valued business going forward), not share profits (Section 14 of the suit details that the Company has been successful for the past 6 years but they failed to make regular and reasonable distributions of profit), etc.
Again, I will keep my fingers crossed that both the plaintiffs and defendants can sit down and come to an amicable agreement here. This would be the optimum solution in my opinion.
As I read the complaint (which I pulled online so I didn’t have to rely on the article), the primary claim is securities fraud. So the issue isn’t whether the contract technically gives them the right to do the buyback this way (which I believe Hill is conceding that it does), but rather that this fact was fraudulently concealed by TH when pitching the investment. Securities law is complicated, but in many instances, it isn’t simply a buyer beware situation where the investor is screwed if they don’t understand the contract they signed. The party soliciting the investment has affirmative obligations to advise the investor as to certain items, and Hill alleges that wasn’t done.
Again, the shareholders agreement. If this is a S-corp, which it sounds like it is from the word "distribution" (not "draw" or disbursement") then there's nothing in the law that states they HAVE to give any $$$ to shareholders every year. If the shareholders agreement says they have to then that's another story, but that would normally be based on a percentage of net profits, which, if they've been heavily reinvesting, may be very low. The company is going to deduct executive pay (possibly exorbitant), rent (to possibly the founders that own the buildings in a real estate holding company which they would certainly be charging an elevated amount for if they can), capital upgrades through bonus, accelerated and 179 depreciation... anything they can deduct to bring down taxable income. Depending on how much the founders own of the company it might or might not be in THEIR financial interest to pay the inflated payroll taxes on a higher amount than to take the $$$ as a distribution that they would have to share equally with the other shareholders.
The fact that there wasn't a stipulation of a distribution to cover tax liabilities is at the very least shitty. For a profitable company, even a small shareholder could be paying many $1,000s every year in tax liabilities and that should really be the responsibility of the company. Not very nice to punish those that invested in your company.
What are your thoughts on the topic of securities fraud as detailed in post #45?
“As I read the complaint (which I pulled online so I didn’t have to rely on the article), the primary claim is securities fraud. So the issue isn’t whether the contract technically gives them the right to do the buyback this way (which I believe Hill is conceding that it does), but rather that this fact was fraudulently concealed by TH when pitching the investment.”
Based on the PA Liquor Control Board database, they own 80%:
The amounts they are disputing don't seem like very much to me. You would think that they could work it out rather than pay legal fees and avoid the bad publicity for all involved.
I really have no idea as I am not an attorney and I don't know what her responsibility might have been given the fact that she is one... And I haven't seen the shareholders agreement.
As part of the settlement, Tired Hands will be ordered to rebrand as Sticky Fingers.
What previous examples are you referring to?
But that is already taken.
I’d really love to read the actual investor agreement.
“Defendants failed to highlight the redemption provision”
“Defendants failed to disclose that an investor’s return would be limited to half of their original investment.”
Why anyone would agree to the 50% buy back provision (at the option of Tired Hands)
on a $5,000 investment is beyond me. I realize hindsight is always 20/20, but c’mon. This provision is egregious.
The personal tax liability issue is interesting if in fact completely omitted from the agreement. That seems negligent.
Also, based on the complaint it is unclear to me whether or not Tired Hands made any distributions.
Are there any securities lawyers here?
The complaint mentions “scienter” but there are no 10b5 allegations, only 17a. Still applicable?
Uhhh.... none of the above?
How about Sleight of Hands?
To me, this reads like the HF crew didn't read the agreement they signed, and are now upset that their equity stake isn't cashing out at fair market value.
Kind of punches a hole in their whole "We're just in it for the beer and human relationships" ethos.
At the time, it's possible they didn't see an immediate plan besides the Brew Cafe. It was just a group of friends tossing a small chunk of change to their buddies to get a minimal stake in the business. They may simply have not considered the possibility that the business would take off the way it did and expand so rapidly, or that there was any chance that in the 5 years' time stated in the agreement, there would be in place both a large restaurant/brewery space and an extremely lucrative canning operation.
The provision makes sense if the original investors were more interested in helping out friends than making money off of the investment. It seems obvious to me that this is only an issue because Tired Hands is now far more valuable than anyone foresaw at the time, and what was a nice gesture of friends helping friends has now been soured by greed.
Which is amusing because on every other post for a long time they talked about their "slow, steady growth" like it has been the plan all along. I don't know what the state of the trolley depot was at the time they opened the cafe but if not that spot then it sounds like growth of some type was always in the works.
... on both sides.
Is that their ethos?
I might have a bad read on it, but it seems like people who know a little bit about Hill Farmstead are like "has the veil finally fallen from your eyes, fanboys?", whereas actual Hill Farmstead fans could not be less surprised.
Imprint doesn't seem to be failing just yet.
Late to this, but that logo did not come from a creative director.
I didn't mean to imply he did.
It's the ethos they try to sell to the masses.
The real ethos of anyone who opens a commercial brewery and sells to hipsters is to try to make money without looking like you even want to. If people just wanted to brew beer, they'd never even think about making a business out of it.
Hard truths being told here on the BA forum.