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own all decedents' remaining shares in FIC, while Robert would be
left the sole guarantor of FIC's debt. Decedents, who were then
over 70 years of age, acknowledged their diminished participation
in FIC's affairs and Robert's leading role and agreed to
relinquish their voting rights only under the following
conditions: (i) Robert would continue to actively direct FIC;
(ii) FIC would be kept intact; (iii) decedents would receive a
fixed income from their investment in FIC; (iv) decedents would
be released from any obligation to guarantee FIC's debt; and (v)
decedents would receive some kind of equity interest that they
could pass on to their children other than Robert.
In order to provide Robert with all the voting stock of FIC
and satisfy decedents' conditions, Robert and decedents agreed to
a recapitalization of FIC whereby decedents would exchange their
common stock for preferred stock. Before the recapitalization,
with the assistance of Mr. Tishler, FIC requested and received a
private letter ruling from the Internal Revenue Service that the
proposed exchange of common stock for preferred stock would
qualify as a reorganization for income tax purposes within the
meaning of section 368(a)(1)(E).
On August 24, 1981, FIC's articles of incorporation were
amended to authorize 5,000 shares of no-par voting common stock
and 6,000 shares of par value $100, nonvoting, 10-percent
cumulative preferred stock (the Preferred Stock). The Preferred
Stock contained no participation, conversion or redemption
rights. On August 24, 1981, each of decedents exchanged 24
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