Wallace R. Noel and Robinette Noel - Page 4

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                                  FINDINGS OF FACT                                    
               Some of the facts have been stipulated and are so found.               
          The stipulation of facts and the attached exhibits are incorpo-             
          rated herein by this reference.                                             
               At the time the petition was filed, petitioners resided in             
          Fort Collins, Colorado.  At all times relevant, petitioners used            
          the cash receipts and disbursements method of accounting.                   
          Investment in Pizza Management, Inc.                                        
               In the 1960's and early 1970's, petitioner owned a number of           
          Pizza Hut, Inc. (Pizza Hut), restaurants as a sole proprietor               
          under a franchise arrangement between petitioner and Pizza Hut.             
          In 1975, petitioner was approached by several other individual              
          Pizza Hut franchisees who had formed a corporation called Pizza             
          Management, Inc. (PMI).  Petitioner transferred his restaurants             
          to PMI in exchange for stock in the PMI corporation.  Petitioner            
          believed that PMI had a special contractual right to issue its              
          shares to the public notwithstanding any terms or limitations of            
          the Pizza Hut franchise agreements.  As a result of petitioner's            
          transferring his restaurants to PMI, petitioner received approxi-           
          mately 11 percent of the stock in PMI.  By the mid-1980's, PMI              
          was the franchisee of approximately 200 Pizza Hut restaurants.              
               In the spring of 1986, PMI developed plans for a public                
          offering of PMI stock.  Pizza Hut successfully prevented PMI from           
          issuing shares in PMI to the public.  Pizza Hut asserted that a             

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