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the parties to obtain an opinion from tax counsel that the
transaction would qualify as a tax-free exchange. Because the
parties never obtained an opinion, GRS remained a subsidiary of
Kolonaki.
In 1988, Georgiou became interested in acquiring the assets
of Petite Concept, Ltd. (Petite), a corporation that operated a
chain of retail stores known as Karen Austin Petites. The assets
consisted primarily of leases, leasehold improvements, and
property. Petite had filed bankruptcy in November 1988.
Georgiou formed JAI to acquire certain assets of Petite. JAI was
incorporated December 13, 1988, with Georgiou as the sole
shareholder. Georgiou remained the sole record holder of JAI
stock from 1988 through the years in issue. There were several
business reasons to form JAI including: Kolonaki had just spun
off its retail division into GRS and adding a retail division
back to Kolonaki would have been counterproductive; GRS would be
a less desirable investment if it attempted to sell shares to the
public with a chain of bankrupt stores included in its assets;
and Georgiou did not want to provide either the Kolonaki or GRS
financial statements to the Petite lessors because several of the
lessors were also lessors of GRS stores.
In December 1988, Petite agreed to sell to Georgiou or his
nominee the assets of 18 Petite stores. Georgiou funded JAI with
$1,186,000 ($234,000 designated as capital and $952,000
designated as three loans). JAI issued 23,400 shares of stock in
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Last modified: May 25, 2011