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guidance system of air to ground missiles. TEI also manufactured
components used in the television industry.
In March 1989, Sterling, a private company with a calendar
yearend, acquired all TEI stock in a leveraged transaction in
which the decedent and Ms. Trompeter received approximately
$14 million in cash and 3,000 shares of a newly issued Sterling
preferred stock. These shares were the only shares of this type
of preferred stock that Sterling issued, and holders of these
shares were generally entitled to more rights than holders of
Sterling's other preferred shares. Of the 3,000 shares of
Sterling preferred stock received by them, the decedent received
1,533.482 shares and Ms. Trompeter received the rest. Holders of
Sterling preferred stock were entitled to receive "preferential
dividends" on the liquidation value of the stock, when and as the
dividends were declared by Sterling's board of directors, and
they were entitled to certain preferences in the event of
liquidation. Preferential dividends accrued daily at the annual
rate of 8.5 percent through the end of 1989, 9.83 percent during
1990, 11.17 percent during 1991, and 12.5 percent from the
beginning of 1992 through the date on which the Sterling
preferred stock was either redeemed or exchanged. To the extent
that the dividends were not paid on January 15 of each year,
beginning January 15, 1990, all dividends which had accrued on
each share then outstanding would be added to the liquidation
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