T.C. Memo. 1997-409
UNITED STATES TAX COURT
GRIFFIN PAPER CORPORATION, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
GREAT NORTHERN NEKOOSA CORPORATION
AND SUBSIDIARIES, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket Nos. 17763-95, 18532-95. Filed September 16, 1997.
G owned all of L's stock. L's primary asset was a
sawmill, which was operating at a loss, and L desired
to find a partner with whom to build a pulp mill to
enhance the sawmill's productivity. In 1981, G and N
agreed that G would recapitalize L, and that L would
build the pulp mill after N transferred to L funds in
exchange for an ownership interest therein. Pursuant
to the agreement, G received 32.8 percent of L's
preferred stock and 5 percent of L's common stock, and
N received the rest of L's stock. All of G's L stock
was subject to simultaneous reciprocal options,
exercisable at any time after 1988, under which G could
put its L stock to N in return for $31.75 million plus
5 percent of L's retained earnings on the date of
exercise, and N could call G's L stock at the same
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