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including elimination of the double tax associated with the
corporate form and the passing through of net losses to the
unitholders. Next, the plan would substantially improve
petitioner’s balance sheet by increasing the shareholder’s equity
by approximately $2.4 million and generating approximately $25.9
million in cash. Finally, the plan would provide potential
increased economic returns from the Washington properties to the
unitholders. The board of directors believed that the market
value of the Washington properties was not fully reflected in the
trading price of petitioner’s common stock, and, by placing these
properties in a separate entity, the board of directors could
achieve a higher overall value for the shareholders.
Petitioner’s shareholders approved the plan at a special
shareholder’s meeting on December 4, 1985. On December 6, 1985,
prior to the effective date of the plan, the partnership units
began trading on a "when issued"2 basis on the Pacific Stock
Exchange. There were approximately 1.2 million partnership
units, and the weighted average trading price of the units for
the period December 6, 1985, through January 7, 1986, was
approximately $11.50 per unit.
On December 20, 1985, pursuant to the terms of the plan,
petitioner (1) borrowed approximately $22.5 million from
2"When issued" is a term used in connection with a security
not yet authorized for issuance. It refers to a conditional
transaction in which one indicates a desire to buy when the
security is authorized and available for sale.
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