Suit Against Stephens Alleges 'Mismanagement'

Little Rock businessman Jennings Osborne was so sure that his medical testing company would continue to be successful after he sold it in 2004 that he agreed to take a deferred payment of $10 million.

Osborne was supposed to receive $9 million if Arkansas Research Medical Testing LLC of Little Rock hit certain financial goals in the three years after it was sold to a company owned by Little Rock financier Warren Stephens for $20.3 million. Osborne also was going to receive $500,000 for being a consultant to his old firm and $500,000 as part of a non-compete agreement.

But Arkansas Research didn't hit its financial goals for two of the three years. Osborne blames "gross mismanagement" for causing Arkansas Research's financial numbers to tank.

"Such mismanagement drove this profitable entity into a dying enterprise," Osborne said in a lawsuit filed against the two Stephens companies. The two Stephens companies are owned by Warren Stephens, CEO of the investment firm Stephens Inc. of Little Rock, according to Osborne's attorney, Bud Whetstone of Little Rock.

Arkansas Research still is operating, but it's for sale, Osborne said in the lawsuit filed in October in Pulaski County Circuit Court.

A spokesman for Stephens, Frank Thomas, declined to comment. And the Stephens entities haven't responded to Osborne's complaint.

Osborne's deferred compensation arrangement highlights the potential problems that can develop when selling a business, said Wayne Lee, president of National Business Brokerage Inc. of Sherwood.

Lee said he wasn't familiar with the Osborne case, but he said a seller whose compensation is tied to specific future goals should keep a hand in the company to ensure the targets are reached.

He said also there should be some penalty to the buyer if the performance goals aren't met; otherwise, the new owner would have no incentive to meet them.

"Any buyer could not meet the milestones and then not owe the money," Lee said.

On one side, Lee said, a new owner will say the company has been managed as well as possible but still didn't achieve the revenue or profit numbers the seller projected. On the other side, "You've got [the seller] saying, 'You didn't manage it as well as I would have managed it.' And then the court system has to figure out who's right and who's wrong."

And that's what's on track to happen in the dispute between Osborne and Stephens.

The Sale

Sometime before June 2004, representatives from Stephens asked Osborne if Arkansas Research Medical Testing Center Inc., which Osborne founded in 1968, was for sale.

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