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purchase under the buy-sell agreement. The buy-sell agreement
provided that, in the event the insurance proceeds were
insufficient to pay the full purchase price of the stock in cash,
the survivor was required to pay the balance within 5 years, with
interest at the prime rate plus 2 percent, and to execute a
promissory note on those terms.
As contemplated by the terms of the buy-sell agreement,
Burke applied to Mutual Life for a life insurance policy in the
amount of $100,000. Despite Burke’s having disclosed on the
application that he suffered from high blood pressure, Mutual
Life issued an insurance policy on Burke’s life with petitioner
as owner and beneficiary. Burke did not disclose to Mutual Life
that he had been treated for chest pains and self-inflicted wrist
wounds, and that he was a member of Alcoholics Anonymous.
Burke had prepared the bids for the Shaktoolik projects and
had been optimistic that INI would make a substantial profit on
them. Petitioner expected a profit of about 10 percent.
Schedule A, an addendum to the buy-sell agreement, showed an
initial stated value of $75,000 for each shareholder's stock, and
insurance policies in the amount of $100,000 each. The addendum,
dated December 22, 1983, was signed by Burke and petitioner.
On May 16, 1984, petitioner and Burke signed a new Schedule
A, which increased the stated value of each shareholder's stock
to $150,000 and assumed that each of the insurance policies in
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