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the hot-dipped galvanized and electro-galvanized steel market.
The company was extremely profitable over the years, and
petitioners, as its operators and investors, obtained significant
returns on their investment.
Subsequently, petitioners engaged in negotiations with
Vernon Bremberg (Bremberg) and Irwin Kramer (Kramer) to explore
the possibility of acquiring specific assets from Old Manchester.
On August 28, 1989, the foregoing negotiations culminated in a
letter of intent on that date. On April 17, 1990, Manchester
Steel, Inc. (New Manchester), a steel company which processed and
distributed flat rolled steel and other related products, was
incorporated. At the time of incorporation, petitioners
purchased shares in New Manchester. Petitioners each owned 97.5
shares of New Manchester which was the equivalent of 24.375
percent apiece. The other shareholders in New Manchester were
Bremberg and Kramer, who each owned 102.5 shares. Combined,
Bremberg and Kramer owned 51.250 percent of New Manchester. At
all applicable times, New Manchester elected to be an S
corporation.
Under the sale agreement, Old Manchester retained certain
assets and liabilities. Specifically, New Manchester purchased
certain steel service center assets and assumed a related debt of
Old Manchester. The assets acquired from Old Manchester
included: (1) Tangible assets of cash, accounts receivables,
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