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balance sheet dated May 31, 1989, reported negative earnings of
$142.2 million and a negative net worth of $43.3 million.
Because LRFP had no positive retained earnings on May 31, 1989,
Griffin’s right to 5 percent of the LRFP retained earnings was
zero, and LRC paid Griffin $31.75 million on July 3, 1989, in
exchange for Griffin’s common and preferred shares in LRFP. On
July 3, 1989, at the closing, Griffin delivered to GNN its LRFP
share certificates and stock powers in consideration of $31.75
million in funds which GNN wired to Griffin’s account. Griffin
also gave GNN an officer's certificate dated July 3, 1989,
certifying that the LRFP shares sold by Griffin to LRC were then
owned by Griffin free and clear of all pledges, security
interests, liens, encumbrances, restrictions on transfer and
options or equities, or claims of others of whatsoever nature.
GNN, in turn, prepared a closing memorandum stating that a
closing was held on July 3, 1989, whereat LRC (on behalf of GNN)
gave Griffin $31.75 million in exchange for Griffin's
certificates representing 1,950 shares of preferred stock and
208 shares of common stock endorsed for transfer.
Griffin filed a consolidated Federal income tax return for
1989, based on the calendar year. Griffin reported a sale of its
entire interest in LRFP for $31.75 million, resulting in a
reported capital gain of $5,598,285. During the period
January 1, 1982, through July 3, 1989, KKO’s two representatives
on LRFP's board of directors actively participated in the board
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