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JC Investors would retain existing management personnel of
acquired companies and would require key employees of the
companies to enter into covenants not to compete.
In 1989, after significant negotiations, JC Investors agreed
to purchase from Cruze for $16.75 million all of the outstanding
stock in petitioner. The stock purchase was structured as a
leveraged buyout (LBO).
In order to carry out the LBO, JC Investors organized Custom
Chrome Holdings, Inc. (CC Holdings), as a wholly owned
subsidiary. On May 24, 1989, a stock purchase agreement between
Cruze and CC Holdings was entered into under which Cruze was to
be paid $16.75 million in consideration for his stock in
petitioner.
On August 15, 1989, JC Investors organized Custom Chrome
Acquisition Corp. (CC Acquisition), as a wholly owned subsidiary
of CC Holdings. CC Acquisition was incorporated 10 days prior to
the LBO for the sole purpose of facilitating the LBO. During its
10-day existence, CC Acquisition did not conduct any activities
unrelated to the LBO.
In August of 1989, CC Acquisition obtained from First
National Bank of Boston (FNBB) a $26 million loan in order to
finance the LBO and to provide working capital for petitioner
after the LBO. The $26 million obtained from FNBB by
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