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certain facts from H Enterprises I necessary to the clarity of
our report and make additional findings of fact.
H Enterprises International, Inc.
H Enterprises International, Inc. (HEI), is a Delaware
corporation. From October 1, 1987, to March 9, 1994, the common
stock of HEI was owned by Eugene U. Frey, Richard E. O'Leary,
John E. Byrne, Anita M. Bertelsen, and trusts for the benefit of
Eugene U. Frey’s family members (collectively, the shareholders)
as follows:
Eugene U. Frey & Family Trusts 50.0 percent
Richard E. O'Leary 33.5 percent
John E. Byrne 14.4 percent
Anita M. Bertelsen 2.1 percent
During the years in issue, HEI was the common parent corporation
of an affiliated group of corporations making a consolidated
return of income (the affiliated group). The taxable year of the
affiliated group was a fiscal year ending on June 30.
The Waldorf Business
On July 15, 1985, HEI purchased a business involving the
manufacturing and selling of recycled paperboard, corrugated
medium, and folding cartons (the Waldorf business). The purchase
price was approximately $100 million. HEI financed a portion of
the purchase price by borrowing approximately $82.5 million from
General Electric Credit Corp. (GECC). The Waldorf business
thrived under HEI’s management, and, by mid-1987, according to an
appraisal, the value of the Waldorf business was approximately
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