- 6 -
value of that share and would remain a part thereof until the
dividends were paid. The decedent and Ms. Trompeter were
entitled, subject to minimal restrictions, to exchange their
Sterling preferred stock for Sterling's 8-1/2 percent/12-1/2
percent subordinated debentures due December 31, 1995.
At designated intervals, Sterling was required by the
purchase agreement (the purchase agreement) underlying the
Sterling preferred stock to redeem shares of the stock at $1,000
per share plus accrued dividends.2 Sterling had to use its "best
efforts" to redeem 1,000 shares of the Sterling preferred stock
on December 31, 1991, and another 1,000 shares on December 31,
1992. Sterling had a mandatory obligation to redeem 1,000 shares
of the Sterling preferred stock on each December 31, 1993 through
1995. Redemptions and payments of dividends were prohibited
during any period of default on Sterling's senior debt.
Redemptions and payments of dividends were also prohibited by
provisions set forth in Sterling's senior debt and senior
subsidiary debt agreements. These provisions generally tied a
redemption to Sterling's profitability as shown in its
consolidated income statement. Sterling's 1990 through 1992
2 The number of shares to be redeemed from each holder of
Sterling preferred stock would equal the product of the total
number of shares of Sterling preferred stock redeemed on that
date multiplied by a fraction. The fraction's numerator equaled
the total number of shares of Sterling preferred stock then held
by that holder. The fraction's denominator equaled the total
number of shares of Sterling preferred stock then outstanding.
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